Opinion ID: 6258030
Heading Depth: 1
Heading Rank: 1

Heading: Depreciation for Obsolescence of Track

Text: Both parties agree that the proper accounting rule on the propriety of the deferred charge method of recognizing a loss is that no deferred charge shall be set up except where costs are involved the benefit of which will inure to the future. The PTC claims that the retirement of track to make way for motor buses falls within the above exception to this rule in that certain benefits did inure to the future in the form of savings in maintenance costs, tax loss carry-over benefits and benefits derived from the new bus system. However, it is obvious that these benefits are at most merely incidental, ancillary outgrowths of the track retirement program and have no direct and continuing dependence on a past capital loss. The PTC claims, however, that the entire undepreciated book costs should not have been provided for in 1956, as directed by the lower court, since the loss was not “reasonably foreseeable” at that time so as to fall within the rule that a loss should be recognized as such wlien it is reasonably foreseeable. Notwithstanding PTC’s evidence to the contrary, it is nevertheless uncontradicted that by the end of 1956 PTC had made three official unsolicited estimates in rate proceedings and balance sheets of the anticipated track retirement loss, the lowest of which ($7,200,000) both the Trustee and the lower court accepted. In addition, the PTC controller’s work papers, which were admitted in evidence, reflect the careful planning of the PTC and the ease with which an estimate of the loss could have been recognized in 1956. Furthermore, by the end of 1956, although only half of the conversion program was actually completed, the new buses were being used on 80% of all the routes which were ultimately converted. From these facts it is evident that the retirement loss in question was reasonably foreseeable by the end of 1956. We are in accord with the lower court’s result that the $7,200,000 track retirement loss should have been recognized and taken by the end of 1956, and that, therefore, the annual $1,200,000 extraordinary appropriations to the reserve for depreciation of track for both 1957 and 1958 were in contravention of the standards contained in the Trust Indenture.