A STOCKTAKING.

Press, Volume LXV, Issue 19624, 21 May 1929, Page 10

A STOCKTAKING.

TRAMWAY BOARD'S FINANCES. DEPRECIATION FACTOR. "Legislation covering the Board's work includes provision for examination from time to time of the question of depreciation," stated a report bv the Works and Tramc Committee to the Tramwav Board yesterday. "Last vear an exhaustive analysis was made 'of the assets of the Board, of which there were no fewer than 1131 items. The original cost of these, including certain replacements £301,350, totalled £1 5-14.649." The report proceeded: An estimate of length of life was given to each item, and a calculation made of the depreciation which naa taken place up to March, 1928. lhis depreciation, including, of course, obsolete or completely worn-out items, amounted to £772,100. At that date negotiable securities were in the hands of the depreciation and sinking fund commissioners to the amount or £439.752. The sum of £301.300 had been spent in renewals and replacements as stated above. [n earlier years certain renewal moneys had been used for newcapital expenditure— £150,355 which were in effect invested in the undertaking itself, but not in debenture form. Revenue surpluses throughout the years had amounted to £71,349, which had been allotted for the purposes of special depreciation. These totalled £962,806. It will be seen, therefore, that, under all heads, £190,706 had been provided for depreciation in excess of the actual depreciation which at March, 1928, had been estimated as having taken place. This £190.706 may be said to be a part of the renewals and other revenue moneys which have been used in the capital expenditure of the undertaking. In other words, it is a gift from revenue account to capital account, free of interest. Revenue account should not in future be required to replace this gift when it is worn out. When it is worn out the people of the future, if they want to replace, will have to borrow. In other words, the borrowing for this capital expenditure may be said to have been postponed. As it is considered that revenue account should not be required to repeat or replace this gift, which is included in the assets of the Board for which provision for future depreciation is now being made, the revenue account may be relieved accordingly, a fortunate circumstance in these days of competitive changes in transport matters.

Including the remaining life of the original capital expenditure, as well as the replacement expenditure since, a sum of £772,549 will have to be provided in the future. Having regard to the length of life remaining, the compound interest earning capacity of annual revenue appropriations for depreciation, and taking into account the interest income from existing funds, it is estimated that the net annual appropriation which revenue should now contribute is £14,364. This is for trams only, not buses.

Sinking Fund,

The Committee does not think that it is fair to the present generation to require it to build up a sinking fund towards the extinction of debenture debt, in addition to making full provision for the writing-off of the asset at the end of life. To do so would mean handing over to the next generation an undertaking in good working order and free of debt. It is considered that our .obligation to the future would be met if it was arranged that the liabilities of the undertaking should never be more than the value of the undertaking. In fixing the amount required for depreciation note has been taken of the accumulating sinking fund, the rate for which is fixed by Act of Parliament and the ■funds of which must be kept in separate accounts. Of the above amount of £14,364 stated to be required for depreciation, £2595 will be paid into sinking fund. In future, only the original cost of the asset to be replaced will be withdrawn from the depreciation fund. The difference between the original cost and the present cost will be raised by way of special order loan. The asset recreated by the replacement work must continue to be the subject of depreciation appropriations from revenue, so that it can, at the end of its second life, be again replaced. As already mentioned, part of this appropriation will be in the form of sinking fund on the borrowed portion o£ the money because the Local Bodies Loans Board in fixing sinking fund for new loans requires the rate to be sufficient to repay the loan at the expiration of the life of the asset.

Each year adjustments will have to be made to provide for the new replacement work, or for the sinking fund on renewal loans. The credits from the interest earnings of existing funds will probably be reduced. The outcome will probably be a substantial increase in the amount which revenue account will be required to provide. In 1934 loans amounting to £811,300 will have to be redeemed, making it advisable that at that time there should be another careful review of the whole position.

Buses. A careful examination of the prospective future life of the omnibuses has been made. This reveals the fact that the depreciation of the past has amounted to £7744, whereas only £5271 has been set aside—a shortage of £2473. With respect to the future the annual appropriation from revenue will have to be increased from £1678 to £2518 per annum, of which a small portion —£244— plus interest, is being obtained from the two leased services by way of rent for the vehicles loaned. The whole subject is a complex one, but the most careful examination possible has been made. The Committee had the valuable assistance of two public accountants, Mr J. Mawson Stewart, and Mr P. N. Quartermain. They did not agree at every point, and separate reports were submitted by them on the material supplied them by the Board's staff. These reports, with the General Manager's comments, were carefully analysed by the Committee, the recommendations of which are now before the Board. Revenue Account. The effect on the revenue account for the year ended March 31st, was as follows: TRAMWAYS. £ Earnings .- •• .. 265,563 Operating expenses .. .. 183,462 82,101 Deduct interest •- .. 54,894 Deduct renewals and sinking fund 14,364 Surplus .. .. •. 12,843 BUSES. Earnings .. •• n 11,125 Operating expenses • • 13,626 Interest . . • - 88S &'iAking and renewals fund 2,274 Deficiency . • • • 5,663 Less amount charged to tram account for bus service during Lincoln road renewals . - 579 Net deficiency . • • • 5,084 APPROPRIATION OF TRAM SURPLUS. Tram surplus last year .. 12,843 Bus deficiency for year . . 5,034 Previous year's shortage in bus depreciation . . 2,473 Revenue deficiencies previous year—trams and bases 5,026 Credit balance carried forward .. 260 Mr J. A. Flesber (chairman) explained the proposals and moved the adoption of the report. Mr W. Hayward seconded the motion. Mrs E. B. McCombs said the report went in the right direction. The salva-

tion of the service was more comfort and lower fares. She hoped that the report meant that a reduction wonld take place in the fares on the longer lines. Mr J. Wood also spoke in favour of the report, which was adopted.