Financial Reviews "AINT WE GOT FUN"

NZ Truth, Issue 1141, 13 October 1927, Page 14

Financial Reviews "AINT WE GOT FUN"

Auckland Amusement Park, Ltd.

HANDSOME DIVIDENDS PAID OUT

(By "Fiat Lux. M ) To pay a dividend of 25 per cent, on its first year's operations is the splendid record of this highly speculative concern.

THE company was formed m Auckland m the middle of 1926 for the purpose of equipping and running a real amusement park m the Queen City, the one city m the Dominion where the success of such a venture could be reasonably anticipated. The first year's results amply justify the promoters' and shareholders' faith m their venture, and this writer hopes that future returns may even exceed this first year's 25 .per cent. The nominal capital of the company is £40,000 m £1 shares. Preference shares total £8000 and ordinaries £32,000. There was actually issued and fully paid up at July 31 last £7654 m preferreds and a round £28,000 of ordinaries, making a total paid-up capital of £35,654, upon which a net profit of £10,415 was earned. No doubt this net profit would have been much larger had it not been for a disastrous fire which broke out on February 22, 1927, and which destroyed the whole of the tea rooms, fun factory, administration offices and part of J the scenic railway. All these buildings and attractions hav4 now been replaced and added to, and for all practical purposes it will be an entirely new Luna Park I ■ which will welcome ■ patrons at the end of the current month when it reopens for this coming season. The profit and loss account- shows that the gross earnings were £24,580, Whilst salaries and wages cost £4935. Running costs, which include power, light, repairs, etc., totalled £1936. Rent, insurance and advertising appears to be very heavy indeed at £3875, but maybe this will include a lot of preliminary advertising which would be non -recurrent The only other charge In the profit and loss account is £3418 for depreciation, which works out at 12% per cent, on the original cost of the furniture, fittings, buildings, plant, machinery and devices. In the opinion of this critic this rate is just half of what Bhould have been written off.

It haa to be remembered that m a concern of this kind novelty and novelty alone will retain public patronage, and fun devices cannot hope to remain m public favor for more than four years; consequently their whole cost should be written off m that time.

Admittedly they would still have some salvage value, but from experience this writer would say that such would be too small to take into serious account. ,

Holding these views, this writer believes the company should annually provide depreciation at the rate of 25 per cent, of the original capital outlay so as to completely write off

Handsome Profits

off the flotation ex-

Buch cost at the close of the fourth year, and this would also have the effect of keeping the shareholders 1 capital intact. If the present rate of depreciation— 12% per cent. — is applied to the value of capital expenditure remaining after previous years' depreciation has been deducted at the end of each financial year, it will take over 25 years to write off the original cost. This would of course be an utterly absurd policy. No doubt it is the intention of the directors to annually write off the full 12% per cent, of the original capital expenditure, which means that it will take just eight complete years' trading to effect this result. Coming to the matter of the disposal of the year's profits, "Fiat Lux" believes the directors have acted altogether too handsomely m paying out 25 per cent, on ordinaries and 15 per cent, on preferreds. After payment of these dividends and providing £1500 for taxes, there will remain to be carried forward only about £668 of the year's £10,415 of net profits. Another feature of the balancesheet wtoich lends point to this contention is that only one -fifth — £706— has been written

' penses account, and the balance — £2827 — remains m the balance-sheet as an asset.

"Fiat Lux" agrees this would be orthodox treatment m the case of an ordinary trading concern, but can such a venture as this be so classed?

No. It is a highly speculative concern and the accounts call for very different methods.

The public, as a body, can be described as fickle m the matter of amusement, and "Fiat Lux" is of opinion the directors would have been well advised to hold their dividends down to 12% per cent, until cash reserves equal to the shareholders' capital have been created and specially invested outside the business.

Such a policy would very soon place the company m an impregnable position regarding catering for the amusement of the Auckland public and would effectually preclude the possibility of opposition. The company has had a good year, notwithstanding the setback occasioned by the fire, and shareholders have been very liberally treated m the matter of dividends.

The investing public, however, must remember that all amusement concerns constantly require the free expenditure of capital to retain public patronage ana such funds must come out of profits. Shareholders will not put up fresh capital every few years even though they do receive a 25 per cent, dividend per annum.

AUCKLAND AMUSEMENT PARK LIMITED Condensed First Annual Balance Sheet July 31, 1927.

N O te: The dividend for the year has been deducted before the issue of thje balance-sheet.

Liabilities. Assets. £ £ Capital paid up 35,654 Buildings, Plant, Machinery 24,101 P. and L. Appropriation .... 938 Furniture 107 Prepaid Expenditure 190 Shareholders' Funds ..... .-. . 86,592 Flotation Expenses 2 827 Reserve for IVixes 1,500 Cash on deposit 10,137 Creditors 122 Cash at Bank 852 £38,214 £38,214