RAILWAYS

Wanganui Chronicle, Volume 73, Issue 440, 4 December 1930, Page 9

RAILWAYS

DEPRECIATION. It is estimated that about sixty per cent, of the income tax levied in New Zealand is paid by limited liability companies, and it may be assumed that these companies arc efficiently 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 lost their original worth and acquire a value dependent upon the particular condition which governs their employment. Under prudent management, the figure at which such assets stand on the balance-sheet are reduced at stated intervals out of the profits of each year, and such reductions arc looked upon as an ordinary 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 March 31, 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 any 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 asset which 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 necessary 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. Tho 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 charge for depreciation accrued from the date of purchase or construction to Marell 31, 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 was estimated that a sum of £10,000,000 was necessary to cover the accrued depreciation of assets from the inception of the Department to March 31, 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 thi.; £10,000,000 still remains like a millstone round the Department’s neck, and no proper provision has been made to meet the situation. There appeared to be only one remedy for such a state of affairs and that is to hand the Department ovez 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.’