Evening star., 1936-11-14
ARTICLE WRITTEN
0NDEPREC|AT|ON
Appraisal Official Details
"Accrued" Theory for
Industry.

With the whole question OF depre-
citation and how to measure 1t very
important in income-tax returns, and
In every phase Of real estate appraisal,
there will be general public interest
IN the article on accrued depreciation
by K. Lee Hyder Of Milwaukee, In the
journal of the American Institute OF
Real Estate Appraisers OF the Ma
tional Association Of Real Estate
Boards, just of the press.
Mr.. Hyder is vice president Of the
American Appraisal Co., Milwaukee.
end head Of the Institutes special
Committee on Education in Appraisal
Methods. He discusses accrued de-
preciation, the actual depreciation
existing in a property whether or not
recognized in the owners bookkeep-
tng) as we'll as book depreciation, the
amount reserved on the books Of q
corporation to provide retirement for
. replacement Of an asset.
The Interstate Commerce Commts-
hon and the Internal Revenue Bureau
take as their base the ''ledger value" !"
that Is, the actual cost to the account
ing company, and this is the viewpoint
taken by most of the governmental
bodies where the provision for de-
probation is recognized as an actual
operating expense, he states. sBut the
United States Supreme Court appears
to have established a ruling principle
contrary to that followed by those
governmental bodies and in exact ac-
cord with the concept followed by the
best real estate appraisal practice.
Courts View Cited.
The court said in its opinion:
THE allowance for annual depre-
citation made by the commission was
based on cost. The Court Of Appeals
held that this was erroneous. and that
At should have been based on present
value. The courts view Of this mat
ter was plainly right. - Manifestly,
this allowance cannot be limited by
the original cost. because If values
have advanced, the allowance is not
sufficient to maintain the level OF
efficiency. 4" 1t is the settled rule
of this court that the rate base is pres
ent value, and it would be wholly
illogical to adopt difference value for
depreciation"
"The United States Supreme Court, "
Mr.. Hyder points out, has repeatedly
held that the observed condition
method of estimating accrued depre-
citation should be accorded the great
est weight. The court recognizes the
Intangible nature of the estimate. but
for this very reason it has always
taken the position that the opinion Of
o qualified witness, based upon his
actual and personal inspection Of the
particular property, together with skill
in application of principles of depre-
citation, estimating must take prece-
dence over mathematical computations
and forecasts, however logical such
may appear.
THE observed condition method
of estimating depreciation has been
fundamental in such recognition as
accorded by the Securities and Ex-
change Commission to date in appli-
cations filed with it for public finan-
cling, and the commissions engineers
have adopted this method in all OF
their independent check investiga-
tions. For S. E. c., in the definite
report 1t requires on the balance sheet
in the registration statement Ito be
prepared and filed in all public f1nan-
cling where the securities are to be
sold in interstate commerce). the
condition, utility and relative desira-
biNty of the physical property as
compared with the book figures or
the appraised costs must be reported
upon independently from the earnings
Sosition and future forecast.
Use observed Condition"
1.-THE Department of Agriculture In
administering the packers and stock