Comments On Report On Depreciation

Report of the Special Committee on Depreciation, rendered to the National Association of Railroad and Utility Commissions in November, 1938, is an able presentation of the arguments in favor of the age-life basis for determining depreciation in general and the use of the straight line method of computing it in particular. From the viewpoint of simplification of accounting, the arguments for straight line depreciation are undoubtedly convincing. In the case of short lived property such as constitutes much of the plant used by the telephone and electric utilities and where a substantial amount of information is at hand regarding the service life of a majority of the facilities, the difference may be very small between straight line depreciation accounting and the use of the average of actual retirements and replacements as a basis for the annual provision. Also because of the young average age of most of the equipment in these industries and the relatively frequent changes in rates for service that have taken place, the amount of injustice that may be done by computing the depreciation accrual as of the present time on a straight line basis may not be too severe. When we view the effects of suddenly applying the age-life theory of depreciation, especially when straight line computations are used, to long lived property such as makes up water systems, many of which have been operating for a half century or more, the picture is very different. Even in the case of water plants, the difference between age-life depreciation applied on a straight line basis and any other form for use in the future would not necessarily be vital, if the facts regarding