The Washington times. [volume] (Washington [D.C.]) 1902-1939, 1909-09-14
Pennsylvania, After Fight,
Agrees to Uniform Ac-
counting System.
CAN NO LONGER
CONCEAL ASSETS
Old Game of Investing Surplus in
Improvements" and Hiding Real
Condition Not Possible.
By ]. C. wELLIvER.

by J. y. WkLLlNER.
After nearly two years of protest and
fighting. the Pennsylvania railroad has
surrendered to the Government, and
agreed to keep its balance-sheet sum
mary Of property and operations in the
form required by the Interstate Com
merce Commission.
The significance OF this move is that
the last grave obstacle 20 the enforce
ment Of uniform accounting methods
among all the railroads has been re-
moved. The Pennsylvania company re-
serves a protest against the authority
of the commission. but agrees to COM
ply with the order. This is regarded as
tantamount to a complete victory, for
it is doubted IL the protest ever will
be pressed.
In its attitude Of determined protest
against this order of the commission.
the Pennsylvania represented all the
various railroads which were standing
out against the authority to enforce a
uniform plan Of bookkeeping This au-
thority was given to the commission by
section % of tle Hepburn act. and for
three years--ever since that act was
passed-the Bureau Of Statistics and Ac-
counts of the commission has been
working out and perfecting the account
ing system. Finally. about three months
ago. the commission issued an order put
ting into final effect the part Of the
scheme which will govern the accounting
OF expenditures for additions and better
ments to property.
How the Plan Works.
The great importance of this account
ing plan may be illustrated readily.
Heretofore different railroads have
made up their annual balance sheets in
various ways, and have kept their ac-
counts 10 suit their own convenience.
railroad With S1O00000O0 gross earn
ings might report that II had devoted
80. 900 to expenses Of operation, $10.-
100000 TO interest on beads, and SO. 600
to dividends. That would leave a sur
plus of s20.0O00O0. Now, II it were de-
sired to conceal the fact that so large
q surplus was being earned. that sum
could be expended in permanent bet
Notwithstanding second tracks, new
terminals. or even extending lines-and
charged to cost Of operations"
On the face OF such a report as that.
the company would appear to have
vastly less net earnings. Moreover a
balance sheet constructed for years with
the purpose Of concealinR a surplus In
this fashion would give no adequate
idea of the actual value of the prop
erty.
For example. a corporation with $780,
000.C00 worth Of property In the Degin-
ming might IN this way reinvest IN
permanent betterments a surplus OF
500, 600, coo a year for ten years. The bal
snce sheets would not show any such
increase in The property account, be-
cause this investment would be charged
20 operating expense. At the end Of ten
q r...T
showing Of S100. 900 900 worth Of property ;
rut IN fact. there would DC the original
SOC 90. 000 worth, plus the 5000 900
worth added from the concealed SIR
plus each year, making a total of $3.50,
1900 worth.
Case of Alton Road.
This IS exactly what happened in the
case Of the famous recapitalizatlon OF
the Alton road. That company Cor many
years reinvested A great surplus In ex-
pansion or it's property. paying modest
dividends and making no balance-sheet
showing Of the great concealed surplus.
Some wise railroad managers, learning
how the Alton had been quietly enrich
Ing its property In this manner. quietly
bought control Of the stock, which had
never sold al prices fairly indicative OF
the real values back Of It. Then, having
control OF the stock, the new interest,
headed by Hartman, proceeded TO
carve the melon of that concealed
surplus; that Is TO Increase the capital
izatiOn 70 a figure commensurate with
the actual value that had been quietly
injected out Of that carving the little
group OF Hartman insiders made some
thirty-odd millions. The public Of
course, paid them; paid them in charges
for its transportation during the series
OF years when that surplus was being
earned. but was being concealed as
operating expenses
Cnder the plan which Prof. Henry c.
Adams, chief Of statistics and acco. nts
for the commission, has devised such
a concealmeEt OF surplus would be i'm
possible. II Is provided that hereafter
all expenditures for new construction,
additions and betterments shall he
the classification Of Property Owned
as Investment"
Will Give True Showing.
Under this system OF accounting. the
balance sheets will give an accurate
showing Of real net earnings. Investors
viii know what the property is actually
earning, and what is becoming OF II.
The public. on the other hand. will be
able TO determine just how reasonable
or unreasonable the rates may be, as
indicated by the earnings.
With the acceptance Of this account
ing order by the great Pennsylvania
system, the commission is in sight Of
perfecting its program for Government
and uniformity Of accounting. There
Is. however. one more subject Of sharp
difference between the roads and the
commission, and that relates to the &C
counting for depreciation Of property.
The commission has undertaken 10 en-
force a general and scientific accounting
Of this item. and the railroads object
TO II. The belief IS. however that the
Pennsylvania surrender on the matter
Of construction accounting presages ul-