Accounting theory and practice, Volume 2 (of 3) : a textbook for colleges and…

perform efficiently as compared with the service secured from more modern equipment, and which may be a condition brought about by lapse of time and the developments of an art or science. When viewed from the aspect of service, depreciation may be due primarily to wear and tear, which is a condition directly dependent upon the service rendered. It has been pointed out that these elements of depreciation, viz., wear and tear, inadequacy, obsolescence, etc., are single and isolated in their action and not cumulative. One of them, therefore, is the controlling element in any estimate of depreciation. Accordingly, in judging the merits of a method the kind of depreciation must be taken into account; i.e., depreciation must be viewed from a time and service standpoint. Ideal Basis for Distribution of Depreciation Charge Regardless of the actual progress of depreciation, the theoretically ideal method of distributing the charge, from the standpoint of a going concern, is so that each unit of output shall bear its just proportion of the burden. Any other attitude is inconsistent. Thus, assuming that actual depreciation does not progress uniformly, that, as some maintain, the rate of depreciation is heaviest towards the end of the service life of an asset, it would not be equitable to charge the product of those years with a much higher burden than that of the earlier years. Just as it is a misfortune to be born under some conditions, so here it would be a misfortune to a commodity to be produced during the latter years of the service life of an asset. The life-period of an asset must be viewed as a whole and its total depreciation should be distributed evenly over its output, if equity is to be secured—other conditions, of course, remaining the same. This principle does not apply alone to the depreciation charge but equally to all other charges in connection with the asset, such as repairs, maintenance, etc. The author does not believe that these other costs should include a charge for an assumed rate of interest on the money invested in the asset. For a full consideration of the question of interest on capital as an item of cost of production, the student is referred to Chapter XXVI. Any method of distributing the depreciation cost must take cognizance of the other costs as well.