Honolulu star-bulletin. [volume] (Honolulu [Oahu, Hawaii]) 1912-2010, 1916-11-15
TWO REPORTSON
INTER-ISLAND CO.
DIFFER WIDELY
(continued from, page one)

TINS 10 say: !. j." ..'. -.
In accordance with the best bust
ness principles. charge is made each
Year for depreciation; this amount is
not 70 be COMPOUNDED with the insur-
ance fund, which is intended TO pro-
vide for requirements of losses actu-
ally suffered but is that amount writ
ten off the value of the public utility
equipment 50 hat tire company may
be in position, should the business
for any reason ever be closed out, 70
return 10 the stockholders the capital
invested by them in the acquisition of
the floating property and other assets
included in this branch Of their bust
ness #:.*.
Depreciation Drafts Vary 49,.
1.-THE amount written off each year
is not a constant percentage. but va
ries, as is the approved custom, Of
most steamship companies, with the
volume of profitable business done
each year, the state of the surplus &C
count and the prospects of business
for the immediate future as far as can
be foreseen
For the year 1913 the depreciation
written off the value of the floating
equipment, etc, amounted to approx
mately 4 per cent on the book value
as shown by the annual balance sheet.
This is not considered an excessive
sum to withdraw from the gross
earnings for the purposes set forth
Other interesting bits of tile audi.
tors report. concerning the deprecf
alton fuAd are as follows: H..
IF depreciation is not included
among the costs of operation, then it
is misnomer No profit can be prop
erly said to have been earned until
full provision has been made both for
accrued renewals and for depreciation
due to obsolescence and other causes,
and, il such provision is not made it
should be clearly understood that
eventually, except for possible appre-
citation of property due to entirely ex-
traneous causes, part of the capital
will be lost or will have been distrib-
uted in dividends. 49,.
Provides for Depreciation
THE depreciation account is in.
tended to provide for current deprecia-
ton on fixed assets, and there should
be monthly charges to operating eX
penses, with q credit to the CORE
spending reserve account which will
represent at all times the expired
value of the fixed assets in service.
up to June 80, 1916, the amount
to the credit of the company's steam
ers depreciation fund was S37, 0S9.9G.
BY closing out this fund December 81,
1915, with a balance of $432, 020.70 and
a corresponding reduction in the float
ing property account, the capital as
sets of the company suffered loss in
that amount.
IF the same financial policy be
continued it is only question of
time when the total amount of the
floating property account of the COM
pany will become wiped out with no
provision, out of profits previously
earned, for reserve for accrued de-
probation.
There is also danger of paying out
of surplus, on account of dividends,
that portion of the capital which
should rightfully be set aside for such
accrued renewals and depreciation.
Where the assets have deprecated in
value and the depreciation is not pro.
yided for out of earnings, the capital
is impaired and it is not permissible
to pay dividends unless the capital is
rnimpaired.
Paying for Dividends
1T is true that the balance in the
insurance fund on March L, 1916, was
O9,272.50 and the surplus account
balance was s201, 503.52. The practise,
however, of appropriating sums out of
the insurance fund for objects other
than notably the payment
of stock dividends should be diseon.
tinued. On this same theory this
fund might also be further utilized
10 take care of renewals and deprecia-
ton.
IF the insurance fund grows too
large, the company should reduce the !
amounts set aside to this account. |
This reduction will result in reducing |
the operating cost of the steamers.
The principal point to be consid- |
cred in providing for depreciation is |
whether or not there has been charged |
to income sufficient sum to cover
the loss by wear and tear and obso- |
lescence and corresponding amount
left in the business in the form of
cash or an undivided asset This has
not been done by the Inter-Island |
Steam Navigation Company, Ltd
THE practise of the company in
setting aside out of surplus certain
funds such as steamers depreciation
fund, insurance fund, construction and
repairs fund and repairs fund is sound
business policy, but the amount so set
aside should be applied to the pur-
poses originally intended. II, however.
a large part of or the whole account
in the reserves or safety funds are
utilized for the payment of stock divi-
dends. as has been the case, then the
building UP of such reserves
defeats its own purpose.
Operations Overwhelmed
There can be only one construction
to place on such financing and that is
that operating expenses have been bur.