NATURE OF CAPITAL AND INCOME [Caar. XV

CapriTAL Account AT END OF YEAR 1902

Assets Liabilities
Factory: . . . . . $200,000 Bonds  . . . . . $100,000
Bepair fund . "VW 10,000 Capital and surplus . 200,000
$300,000 : $300,000
INcoME ACCOUNT DURING YEAR 1902
Capital Source Income Outgo Net
Factory Product . $40,000 Running expenses
 . . $15,000 + $25,000
Repair fund Investment . 10,000 — 10,000
Bonds Interest . . 5,000 — 5,000
Capital and
surplus Dividends . 10,000 - 10,000
$40,000 $40,000 000

Here we see that the value of the plant depreciates by
$10,000 as before, but that, to replace the loss, there are
$10,000 worth of repair funds invested in, say, stocks and
bonds. The consequence of the repair fund is that the value
of the assets of the company remains stationary at $300,000 ;
the share of this property which falls to the stockholders
also remains at a constant level, namely, $200,000; and
the stockholders receive dividends of only $10,000 instead
of $20,000, having set aside $10,000 to invest in their
repair fund. We may suppose that during the next year
the depreciation continues and that the factory yields again
$25,000, as we saw in § 2. Since its value was only $290,000,
the “earnings” of which are only $14,500, it must have
depreciated $10,500. Since the repair fund set aside in the
previous year has earned 5 per cent, or $500, the accounts
for the year 1903 will now be as follows: —

CAPITAL ACCOUNT AT BEGINNING OF YEAR 1903
Assets Liabilities
Factory. . . . . . $200,000 Bonds. . . . . ., $100,000
Repairfund . . . . 10,000 Capital and surplus . 200,000

$300,000 $300,000