perform efficiently as compared with the service
secured from more modern equipment, and which
may be a condition brought about by lapse of
time and the developments of an art or science.
When viewed from the aspect of service, depreciation may be due
primarily to wear and tear, which is a condition directly dependent
upon the service rendered.
It has been pointed out that these elements of depreciation, viz.,
wear and tear, inadequacy, obsolescence, etc., are single and isolated
in their action and not cumulative. One of them, therefore, is the
controlling element in any estimate of depreciation. Accordingly, in
judging the merits of a method the kind of depreciation must be taken
into account; i.e., depreciation must be viewed from a time and service
standpoint.
Ideal Basis for Distribution of Depreciation Charge
Regardless of the actual progress of depreciation, the theoretically
ideal method of distributing the charge, from the standpoint of a
going concern, is so that each unit of output shall bear its just
proportion of the burden. Any other attitude is inconsistent. Thus,
assuming that actual depreciation does not progress uniformly, that,
as some maintain, the rate of depreciation is heaviest towards the
end of the service life of an asset, it would not be equitable to
charge the product of those years with a much higher burden than that
of the earlier years. Just as it is a misfortune to be born under
some conditions, so here it would be a misfortune to a commodity to
be produced during the latter years of the service life of an asset.
The life-period of an asset must be viewed as a whole and its total
depreciation should be distributed evenly over its output, if equity
is to be secured—other conditions, of course, remaining the same. This
principle does not apply alone to the depreciation charge but equally
to all other charges in connection with the asset, such as repairs,
maintenance, etc. The author does not believe that these other costs
should include a charge for an assumed rate of interest on the money
invested in the asset. For a full consideration of the question of
interest on capital as an item of cost of production, the student is
referred to Chapter XXVI. Any method of distributing the depreciation
cost must take cognizance of the other costs as well.