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

Criticisms of the miscellaneous theories can be brief. (a) Maintenance Method This method is irregular in its incidence, and under it the depreciation charge fluctuates violently between periods. Just as maintenance is subordinated to the requirements and demands of the trade, so also are depreciation costs made to depend on the same conditions. The charging of depreciation thus becomes a matter of business convenience instead of an inexorable fact of production. Just as repairs are postponed to a slack period during which maintenance charges are in consequence heavy, so does the depreciation charge increase even though actual wear and tear has decreased. Presumably the method makes charges light during the early years and heavy during the later years of the life of the asset. In a large plant with various kinds of assets, after a normal up-keep charge has been established, the maintenance method of estimating the periodic charge for depreciation for the plant as a whole may work out fairly well on the theory of averages or by accident; for maintenance is not a measure of depreciation. (b) Replacement Method This is not a method of measuring depreciation but rather of financing it, i.e., of making good the loss. It also is based on the law of averages, and in a large plant after the point of normal replacements has been reached it may prove a satisfactory method of accomplishing its purpose. It does not serve as a means whereby a periodic depreciation charge can be brought on the books. Furthermore, it disregards the depreciation accrued up to the point of normal replacements. (c) Fifty Per Cent Method This method is also based on the law of averages. Here the law is very apt to work out satisfactorily. When the point of normal replacement of the assets, to which the 50% method is applicable, has been reached, the amount of depreciation is approximately 50% of the original value of the group of assets. This amount may be booked at that time and will remain without change thereafter, for the assets are maintained constantly in that condition. As a means of valuation, the method may serve well; as a measure of periodic depreciation or as a means of distributing the depreciation cost over the product, it is inadequate. (d) Appraisal Method This method is also inadequate as a means of measuring the periodic cost of depreciation. The physical facts of depreciation are not usually discernible at such short intervals. A judgment of values must, therefore, almost invariably make use, consciously or unconsciously, of some of the other methods of estimating the amount of depreciation by periods. After all, all methods of measuring depreciation are appraisals. Under the appraisal method confusion between original cost and reproduction cost is almost certain to occur, for present market values usually control physical appraisals. A discussion of the relative merits of original cost and reproduction cost as a proper basis for estimating depreciation will be presented in