The Richmond palladium and sun-telegram. [volume] (Richmond, Ind.) 1907-1939, 1913-09-15
Voting Machines and Depreciation

clothing houses, furniture, machinery, horses
and streets will cease to be disable.
How shall the new be purchased? This is the
question which every user of necessary thing
must face
At this time there two general ways in
use among people everywhere Of these two the
cOmmoner seems to be the method of borrowing
money when the old is worn out in order to buy
a to take its place. This money may be Dor
r0wed from a friend, bank, loan company or
some similar institution. After the new article
is purchased in this way and during the use of
it the user of it pays interest on his loan and
finally the loan itself.
Cities have very largely used this method in
the past for replacing outworn public utilities.
If the city waterworks equipment has out,
the city has bonded itself to secure the money
to pay for a new plant
We are now beginning to see that this,
though it may have some minor conveniences, is
really most unbusiness-like way of doing
business. Business authorities and industrial ex-
perts and accountants are universally condemn
ing it.
They are pointing out that it is poor policy
tor one thing because it doesn't make it sure that
a city will be- in position where it is able to
purchase a new plant or even to borrow the
money. If the Richmond municipal light plant
wore out next year. we might find not enough
money in treasury to build new one and we
might already be so heavily bonded that the state
would not permit to issue bonds. 1t
would therefore be necessary either to let some
private corporation erect the plant and it or
to tolerate the imperfect service which the old
might still be able to give
These business experts also show that the
city loses money by this old method of bonding
itself to build new plants Interest must be paid
On the loans and thus the city loses that amount
If we borrow $4,000 at per cent to buy an
automobile and have to pay per cent for four
years on it, we have paid out at the end of that
time not only the original $4,000, but also the
accumulated interest which amounts in this case
to no less than $52484. Thus by borrowing the
money have made machine cost us
$52484 more than it would had we paid cash
for it.
When city borrows money to build water
works plant it pays out for it than it is act
ually worth the amount of interest paid on
the loan
The new and more business-ke method of
purchasing a new equipment when the old is
worn out, is to establish depreciation fund.
depreciation fund is fund in which mon
ey is placed at regular intervals in order to save
up against the time when the new plant must be
built.
In order to raise this money the rates are so
adjusted on the electricity, water, whatever
service may be sold by the publicly owned plant
that surplus will be found to place to the credit
of the depreciation account. In other words ev-
cry citizen using the service pays small sum
each year toward the new plant which will be
bought in the future.
nance that includes cost of operation repairs
and similar expenses. The maintenance cost is
charged up against the annual general expenses
of running the plant: the depreciation fund has
nothing to do with the cost of operation 1t is
simply savings fund being accumulated against
the time of purchase of a new equipment.
The method most in vogue for calculating the
amount of money necessary for depreciation is
to determine the life of the plant and it's cost
for installation when new and to divide the value
when new by the number of years of life. That
gives the average amount per year which must
be set aside for replacing the plant when worn
out.
Using this method, if we wish to buy an auto
mobile when our present machine is strapped
we determine how long we may expect our pres
ent machine to last, how much new one will
cost and will then divide the cost of the new b,
the number of years our present machine will
wear out, and will then set aside that amour
each year in our depreciation account
If, in instance, our present machine will las
four years, and a new one will cost So 900. W,
will lay aside each year $500. At the end of fou
years will be able to buy new machine TO
cash and so save interest on loan.
Not only will this make it possible for us t.
buy new just when we need it, and also saw
us the interest it will make the car cost ever
less because for the four years we will be draw