DEFINITIONS y
It is sometimes difficult to draw a close distinction between
repairs and replacements and between deferred maintenance
and accrued depreciation. It is generally assumed that deferred
maintenance results from neglect to make the lesser repairs
and renewals such as are current from year to year and that
depreciation comes into consideration when dealing with the
more important items which when new have a probable life of
at least a number of years.
Replacement Cost. — The replacement cost is the cost of a
new article with which a worn-out article is replaced, less the
residual value of the original article. It is the cost of effecting
a change from the worn-out part of the property to a new part
of equivalent service value.
Invested Capital or Investment. — The investment or the
capital invested hardly needs a definition. It is the aggregate
of the expenditures which have been made and which remain
in the business. It is the summation of the cost of the
various items which make up the property in question and render
the same efficient for the purpose for which it is intended, less
such sums as may have been applied out of earnings for the
retirement of the capital. In connection with the valuation
of public utility properties it may be regarded as the aggregate
of the reasonable and proper expenditures which have
been incurred to make these properties serviceable. It may
and generally does include such items as the cost of establishing
the business.
Wearing or Service Value. — When the fact is taken into
account that an article after it has ceased to be useful in connection
with one enterprise or property may still have value in
connection with another, and usually does have some scrap
value, it will be plain that the lessening of worth is not to be
estimated from the original full cost of the article. It is the
difference between the first cost and the residual value which is
being consumed during the useful life of the article. This difference
is frequently referred to as the wearing or service value
of the article.
ZL
