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 ex- 
penses . . $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