depreciation on the equality of the distribution of the charge.
Another method, used in plants where a very accurate determination
of the costs of production is desired, has as an outstanding feature
a preliminary estimate, made at the time of installation, of the
expected amount of repairs needed during the entire life of the asset.
Periodically this estimate, or proportional share thereof, is brought
on the books as a charge to Repairs and credit to Reserve for Repairs
and so is spread evenly over the service life of the asset. As repairs
are actually made, the cost of these is not charged against operation
but against the reserve created for that very purpose. At a given time,
the status of the reserve account shows: (1) if the equipment has just
been placed in a normal state of repair, the under-or over-estimate of
the amount of actual repairs needed, or (2) if the equipment is not in
repair, the reserve account gives an index of the probable amount of
deferred maintenance. Both items of information are of value in the
proper management of properties. It is to be expected, of course, that
during the early years of the life of an asset there will be a fairly
large credit balance in the reserve because repair charges are light.
The credit balance so accumulated will be needed during the later years
when the costs of maintenance become heavier.
The third method, which is a variation of the second, has as its
characteristic feature the inclusion of the repairs cost with the
depreciation charge. This likewise necessitates a preliminary estimate
of the amount of expected repairs during the life of the asset.
Instead of being handled separately, it is added to the depreciation
rate and in this way charged against the product. This method has
been prescribed in the case of some utilities in England but is not
much used here. Under this method two depreciation estimates of
probable life are necessary, viz.: (1) maximum life brought about by
an inclusion of repairs, renewals, etc., and (2) minimum life without
such repairs. By this it is not meant that other methods of calculating
the depreciation rates fail to take cognizance of the repairs factor,
but that this method specifically calls attention to it and includes
it in the charge made. It seems best for regulatory boards to make a
separate book record of repairs and depreciation, thus insuring against
any oversight of the factors of depreciation and also insuring the
correctness of a statement of condition.