INSTRUCTIVE LECTURE.

Poverty Bay Herald, Volume L, Issue 16495, 30 July 1924, Page 2

INSTRUCTIVE LECTURE.

DEPRICTATTON AND RESERVES.

Mr. R. W. Edwards delivered an address on “Depreciation and Reserves” to members of the N.Z. Bank Officers’ Guild (Gisborne section) and the Gis borne Accountant. Students’ Society last evening. H© said that term “depreciation” was used in accountancy to repre : sent the shrinkage in value of any particular property, building, machinery, plant, etc. (a) arising from wear, tear and breakages as a consequence of its employment, in trading or manufacturing purposes, and (b) the effluxion of time, (c) any other source. There was a tendency to ignore depreciation until trouble actually presented itself glaringly, by the necessity of a big expenditure of money in one year, which could not be capitalised, and for which provision should have been made over. say. ’the hist tpii years. Of course, there was. a corresponding over-statement of profit for each year in which the proper depreciation was ignored and, if in the case of companies, dividends had been paid, shareholders were likely to have beyn paid their own capital instead of earnings from their capital. So it, did not need a great deal of thought to understand what a. serious thing it was for a business to ignore depreciation where evident in trading. With reference to reserves, the speaker mentioned that a- reserve account was quite a different account from a reserve Bind. With the latter the money must he funded, in liquid assets preferably out of the business.

An American authority defined secret reserves as a creation for jho purpose of reducing the amount of the visible surolus, so as to withhold the profits of the business and at the same time, prevent shareholders from demanding distribution of the true surplus in the form of large dividends.

By tho use of blackboards many concrete illustrations were given, which were keenly followed by the audience. An informal discussion of the lecture followed, after which Mr. Edwards was accorded a hearty vole of thanks.