RAILWAY PROBLEM

Gisborne Times, Volume LXXI, Issue 11382, 6 December 1930, Page 12

RAILWAY PROBLEM

ARREARS IN DEPRECIATION

MILLSTONE ROUND DEPARTMENT’S NECIC. . .

(Issued by the Associated Chambers

of Commerce.)

It is estimated that about sixty per cent of the income tax levied in New Zealand is paid ‘by limited liaiblity companies, and it may be assumed that these companies are effiqieritiy controlled by boards of directors and. conducted by competent managers. Most companies have money invested 'in plant, buildings, machinery and tools, which .in the aggregate represent a large sum of money. In the course of time,.due to wear .and tear, depreciation and obsolescence, these assets lose their original worth and acquire a value dependent upon the particular condition which governs their employment.

Under prudent management, ’. the figures at which such assets stand on the balance sheet are reduced at stated intervals put of the profits of each year, and such reductions are looked upon, as ordinarv trade expense. The result is, that by the time it becomes necessary to discard any particular plant, the value has been so diminished that writing off is not a hardship. Such is the course followed by competent' management. In order to :see how differently a politically controlled enterprise is operated, let us quote the exact words of the Royal. Commission, which, investigated the affairs of the Railway Department:

“From the inception of the Department and up' to the .‘3lst March, 1925, the accounts were kept; on a, cash basis and no means were available whereby provision could be'made for deferred maintenance, accrued depreciation, .or reserves of qjiy. kind. Renewals of assets were, in many instances, charged against working-expenses, but in other cases assets were abandoned or worn out,-and the necessary adjustments of capital to take these assets out of the accounts were not. made. There arrives a time .when it is. not economically sound to keep an assetwinch has been in existence and in Use for a long'period of years in commission 'by continually undertaking repairs, and the Department is now faced with this position. It has’been found neces : sary within a period of a few years to scrap a considerable number of the engines and rolling-stock, practically the whole of the original workshop facilities, numerous bridges, and many of the principal termini. The effect is that the revenue of the Department is not sufficient to carry in any one year, or even over a period of years, the chajge for depreciation accrued from the date of purchase or construction to the 31st March, 1925, and this accrued depreciation has now to. be considered and dealt' with, as in very many instances the assets are worn out and are being discarded.' Evidence before your Commission showed that as a result of investigations conducted by the heads of departments in conjunction with the Chief Accountant it w&s estimated that- a sum of £10,000,000 was necessary to cover the accrued depreciation of assets from the inception of the Department to the 31st March, 1930, and this sum would include the loss on assets which have been, or shortly will be, scrapped”

It is true that, since 1925, the Department has been charging the necessary depreciation' incurred each year, but this £10,000,000' still remains like a mill-stone round the Department's neck, and no proper provision has been made to meet- the situation. There appears to be only one remedy for such a state of affairs and that is to hand the Department over to a business directorate who would give a general manager the support and authority to deal with the situation as it would be dealt with, by any prudent business concern.