RAILWAYS

Hokitika Guardian, 4 December 1930, Page 2

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 bo assumed that these companies are 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 prudertt 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 are 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 ; rm of? is not a hardship. Such is the course followed by competent management. In order to flee how different-tv a polticallv controlled enterprise is ; operated, let us quqte 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 31st. 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 any kind. Renewals of assets were, in many instances, charged against working-ex-penses, 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 economicallv\o’md to keep an asset which has been in existence and in use for a long period of years in commission bv 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 Iscrnp a considerable number of the engines and rollingstock, 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 charge for depreciation accrued from the date of purchase or construction to the 31st. March. 1925, and this accrued depreciation heis now to h<* considered and dealt with, as in very many instances the assets are worn out and are being discarded. Evidence before your Commission showed that ns a result of

investigations conducted by the heads of departments in conjunction with jthe Chief Accountant it w;its 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 thus sum would include the loss on assets which have been, or shortly will lie, 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 millstone round the Department’s neck, and no proper provision has been made to meet the situation. There appears to be onlv 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 he dealt with, by any prudent buf incss concern.