Skc. 2] CAPITAL AND INCOME ACCOUNTS 257 
sponding item in the income account. Let us suppose a 
factory company operating a plant worth $300,000, which 
is bonded for $100,000. The remainder, $200,000, will 
represent the capital and surplus of the company If these 
valuations represent a true and not simply a fictitious book 
value, and if the rate of interest be taken at 5 per cent, the 
fact that the plant is worth $300,000 signifies simply that 
its earning power is $15,000 a year, of which $5000 goes 
in interest to the bondholders and $10,000 in dividends 
to the stockholders. The capital and income accounts of 
such a firm, doing a steady and uninterrupted business, 
would repeat themselves in monotonous regularity year 
after year. 
§ 2 
If now we suppose that the repairs and replacement of 
the plant do not occur in equal amounts each year, but that 
it is necessary, at long intervals, to make large, special, or 
extraordinary repairs; there will occur during the interme- 
diate years “depreciations” of the plant, and sudden res- 
torations in its value when these special repairs are made. 
Thus, suppose that during the year 1900, the factory 
pi depreciates by $10,000. The capital account at the begin- 
‘ning and end of this year, and the income account during 
the year, will be given in the following table: — 
  
CAPITAL ACCOUNT AT BEGINNING OF Year 1900 
Assets Laabilities 
Factory . . . . . $300,000 Bonds. . . . . . $100,000 
Capital and surplus . 200,000 
$300,000 $300,000 
Carrran Account AT END OF YEAR 1900 
Assets Liabilities 
Factory . . . . . $290,000 Bonds Hogs, Het 8100.000 
Capital and surplus . 190,000 
$290,000 $290,000