Abstract A heated controversy is continually waged over the relationship of depreciation to the rate base. Difficult and controversial as is the issue for large and typical utilities, it is especially troublesome for small utilities, and the literature is noticeably lacking in this field. To help clarify objective thinking along these lines, it is proposed to take, as an illustration, a utility with only one plant and to enunciate the principles applicable to small and large organizations as well. This article presents a discussion of the method of determining the size and type of the rate base, comments on how to arrive at the rate of return equitable to all parties, on what part depreciation plays in the accounts and in the rate base and on some elementary aspects of utility financial structure as they relate to the topic. What seems to be a logical program has been brought to the front as all the various phases of the subject have been considered. It is not to be expected that the controversy will die down, but, nevertheless, it was essential to face all the issues squarely and not to avoid even the most controversial aspects of the whole question. The seriousness of inflation as it reaches out to touch utility regulation cannot be overemphasized.

Reviews the book "Municipal Public Works Cost Accounting Manual," by Walter O. Harris.

Abstract The article presents an analysis of the public utility earnings and rate base formula established in Missouri. First, an original cost undepreciated rate base is established. Second, a calculation is made, whereby, for study purposes only, a credit to operating revenue is set up for an amount equivalent to 3% per annum on the balance of the depreciation reserve. This amount, when added to the total actual operating earnings of the utility, gives a figure which will be compared with another figure equal to the established official rate of return applied to an undepreciated original cost rate base. Whenever the two figures coincide, the rate structure is considered to be sound. The Missouri concept grew out of the philosophy behind the original sinking fund method of depreciation. A utility has a choice of the disposition of the assets withheld as a consequence of operating expense charges for depreciation. The application of the sinking fund method in conjunction with an undepreciated rate base resulted essentially in the same equitable return to the utility stockholder as if there had been no fund and a fully depreciated rate base had been employed.

Abstract What is properly labeled "retirement accounting" is a doctrine of great importance. According to this doctrine no depreciation charges, as such, are set up annually on the books and no estimate is made of the periodic depreciation accrual. The significant point of time, in the view of its advocates, is the period when the asset is withdrawn from service. At this time the original cost of the asset is charged to operating expenses. Specifically the procedure sets up asset accounts to which the cost of all property purchased or constructed is charged at the time it is acquired. These charges remain on the books until property is abandoned and then the original cost of the asset is charged to operating expenses. In effect an account like "Retirement Expense" is charged when an asset account is credited for the amount of the original cost of the asset abandoned. The scrap value realized, if the asset is sold, is charged to cash and credited to "Retirement Expense." Or if the asset is "junked" in place of being sold, the charge is made to materials and supplies account and the credit to "Retirement Expense" account for the amount of the appraised value of the asset.

Reviews the book "Accounting Problems: Intermediate," by Charles F. Rottenhouse and Atlee L. Percy.

Abstract Accounting at the outset was concerned largely with the financial relations existing between a concern and its customers and creditors. Very soon, however, this narrow aspect of accounting was modified so that the accounts would record all assets and liabilities and make possible the construction of the balance sheet directly from the ledger. Then followed additional changes which permitted the presentation of a profit and loss statement. In all instances, however, the accountant was concerned largely with recording the historical changes in the financial and operating aspects of the business. Although some thought was given to the uses to which these statements might be put the primary consideration involved showing the chronological events from the point of view of what had happened and whether any irregularities were disclosed. Later when it became evident that accounting possessed an important relationship to management, the accounts and particularly the statements, were modified. Accrued and deferred items became recognized, with consequent changes in the balances of the income and expense accounts, so that the latter displayed incomes earned and expenses incurred by periods.

Reviews the book "Uniform Accounting Manual for the Electrical Manufacturing Industry."