Sec. 5] CAPITAL AND INCOME ACCOUNTS 263 
year does not yield the $25,000 which has regularly ap- 
peared as the net income in the previous accounts, for during 
this year we have to charge to the factory the special repairs 
of $31,500. The factory itself, therefore, produces a net 
deficit of $6500, offset by the large proceeds received from 
the sale of the repair fund of $31,500, which, less the new 
investment of $10,000 during the year, shows a net return 
for the year of $21,500. We see, therefore, that the exist- 
ence of the repair fund to cover depreciation virtually 
maintains the capital accounts at a constant level, merely 
changing from year to year the form of the items, but not 
affecting either the interest of the bondholders or the 
dividends of the stockholders. In other words, the repair 
fund acts as a means of standardizing the stockholders’ 
income. In ordinary business accounting, such standard- 
izing is regarded as sound policy. 
$5 
Certain exceptions occur, as in the case of mining com- 
panies or land companies which necessarily must terminate 
their operations in the more or less remote future. But 
even in such instances, the instinct of the accountant 
toward standard accounting is so strong, that he usually 
treats the excess or deficiency of real income with relation 
to standard income in a special manner. 
Thus, when a company winds up business, the final dis- 
tribution of the proceeds is not treated as an ordinary 
dividend; the most of these proceeds are regarded as 
capital returned to the stockholders. The “company ”’ 
therefore goes through the form of paying for the shares 
of its stockholders and enters what it thus pays over to the 
stockholders as a cost of purchase instead of as a dividend. 
The reverse operations may oceur if at any time the stock- 
holders forego their dividends. It is in such a way that a 
company usually enlarges its capital. It nominally dis- 
tributes the regular dividends, but allows the stockholders