THE SOUTHLAND FROZEN MEAT COMPANY’S BALANCE-SHEET.

Southland Times, Issue 17657, 15 February 1916, Page 2

THE SOUTHLAND FROZEN MEAT COMPANY’S BALANCE-SHEET.

To the Editor,

Sir, —jir j. e. Watson In your issue of to-day has found, to use his own word, an “astounding” mare’s nest in reiterating that liquid assets and reserve funds are not in this case, synonymous terms, which I said and still say they are, and X will prove it. But first let us leave the Bank of Australasia alone, as we are both agreed in their bookkeeping and thorough soundness of their finance.

Liquid assets on the credit side of a balance-sheet which it is right to say can be called a reserve fund if so desired, are undivided earned profits set aside from the profit and loss account and invested in gilt-edged securities which can readily be turned into gold to meet urgent emergency arising from unforeseen causes, a different thing altogether from this £38,239 of reserve accounts on the debtor side of the account, which is nearly all in land, buildings, plant, machinery, stores, etc., and therefore cannot bo so converted, because the £10,908 Os Id at the Company’s credit in the Bank (prac. tically the only liquid assets) is all the money they have to pay off the £15,000 debentures they owe, and on which they are now paying interest. The Interest earned from a reserve fund or liquid assets may bo used in the business, but not the principal; this is sound finance. I am glad to hear from Mr Watson that the shareholders have got back all their lost capital. I know that they had got hack .some. May I ask If they got back fair interest or the equivalent of a dividend for all these years on this lost capital regained? If not, they are entitled to it.

Mr Watson goes on to say that because I suggested adding the £38,239 called reserves to the capital account of £68,000 (making it £106,000 and paying a dividend on it in future) and giving the shareholders paid-up scrip for it, which would not cost them a penny, it Is a tardy admission from mo that tile reserves are real and substantial. Nothing of the sort. I have already said what the reserves are. Let the Company draw an open cheque for this £38,239, and invest it in liquid gilt-edged securities and then see on which side their bank balance is. That is the true test.

Now, referring to the annual meeting, also in your issue of to-day. The chairman (Mr John McQueen) referred to the agreement that I made with the Company ten years ago not to further criticise their methods of book-keeping, until 1 became a shareholder, for that was the proviso, which would give me the right to do. Well for all that time I have muzzled my pen, and I hardly think that either of us intended that my silence was to be forever, because by buying shares Leonid break it. However I leave the public to judge between us, as it was not my intention to plead the Statute of Limitations, as kindly suggested by Mr Dunlop.

Mr W. B. Scandrett, too, has found a marc’s nest, hut of lesser dimensions than Mr Watson’s, just as it should be. Thanks to a friend who has given me the correct dates. British 3 per cent. Consols, originally, were converted to 2 a 4 per cent, in .1888 —say 28 years ago; and as they were not further converted to 2Vz Per cent, until 1905. a little over 10 years ago, Mr Scandretfs statement that 20 years ago 2% per cent. Consols sold at £9O for the £IOO is all wrong. As for Mr George Chewing’s lucid remark that the Company will be going on after 1 am dead; it is to be hoped so, or it will be a bad day for the reserves, as I may go off to-day or to-morrow, but not if I can help it. Nw, Sir, in conclusion, please give me space for the following caustic, yet sound. advice given to the Christchurch Meat Company at an extraordinary general meeting in March, 1906, by the late Mr George G. Stead.—"Mr Chairman, you are aware that T was invited to take a soat on the Board in January last, but that owing to a prior engagement to attend a meeting of the Press Association, held in Nelson, on February, 26, I was unable to attend the annual meeting of this Company on February 28. When returning through Wellington I read a report of the meeting from which 1 gather that the shareholders resolved to transfer £15,000 from the reserve fund to the profit and loss account. I wish A 'record' my dissent from this resolution. The sum of the reserve fund in the bal-ance-sheet is not a realisable or liquid asset, and at not available to replace losses on the working account, which have to be provided for with gold. I wish therefore to record my dissent from the resolution carried at the annual general meeting.” (Otago Times, 17/3/06). I am, etc., WILLIAM HANDYSIDE. 14th February. To the Editor. Sir, —I noticed a letter in you columns recently over the signature of Wm. Handysido concerning the method of investment of the reserve fund of the Southland Frozen Meat Coy. I think the shareholders of that Company should have passed a vote of thanks to Mr Handyside, and then asked their directors some pertinent questions. I have before me a balance-sheet of the Waihi Gold Mining Co., and it shows how their huge reserve fund is invested, giving the names and amounts of all securities held, and also the income from same. Tliis is as it should be, and.it should be compulsory for all companies to do this. I am not a shareholder in the S.F.M. Company, but every resident in the province is interested in the welfare of such a Company, Should a time of stress come, and at the conclusion of the war it is quite possible that it will, what position is any company in whose so called reserve fund is being made use of as capital. It certainly would be anything but a happy position. No sir, Mr Handyside is right and his logic is perfectly sound. The S.F.M. Co. should invest its reserve fund in readily negotiable securities in the nature of Government stocks, municipal bonds, and the like. The prosperity of the S.F.M. Company is a reflex of the prosperity of Southland, and its shareholders should insist on its strongest asset being properly safeguarded and not used in such a way as to make the name reserve fund a misnomer.—l am, etc., SAFE FINANCE. February 14, 1916.