time clerk or an assistant, or in a large establishment a machine checker, should obtain each day from the foreman of the shop an account of the time during which Plant return. each machine was working, and to what order number the work was done. At the end of each week, or other convenient period, a Plant Return (Specimen No. 49), should be compiled and sent to the counting-house. PLANT DEBIT SUMMARY.-SPECIMEN No. 49. Return of Machinery at Work and Charges to be made for The life of a machine, or, in other words, the number of working hours a machine will last, being known, Original the principal or some other competent person cost and life of object. would establish a ratio per hour between the original cost of the implement (modified by maintenance and residual value) and such working hours or life of the implement. On this basis a voucher would be prepared in the counting-house for passing through the Prime Cost Ledger the debits to the various working orders, and the credits to machinery accounts under the various numbers of the machines; or, in place Plant of these vouchers, it may be found convenient to enter all the details through a Plant Residual Journal. The machine being worn out, it should be sent into Stores with a Plant Recovered Note showing its estimated realizable value, at which amount Value. it becomes a credit to capital. Any credit or debit balance that remains on the book value of the machine may, as thought desirable, either be carried to profit and loss account or to a reserve fund, should one have been opened to provide against loss on plant. Should it be found that the machine is likely to have a longer life, or to give more working hours than was expected, the rate per hour may of course be diminished, so that future working orders may not be debited at a higher rate than is necessary, and equilibrium on the debit and credit sides of the Plant Ledger be produced. This system of charging depreciation on the basis of the life of a machine and its cost would equally Cost of fuel. apply to the apportionment of the cost of engines and boilers and of the fuel used in them. The total number of hours the machinery is running will, the life and cost of the engines and boilers having been ascertained, enable working orders to be charged with their proportion of cost. Similarly, the aggregate number of hours the machinery is in use being known, the division of the fuel account for that period by this number will give the cost of fuel per hour for each working order. When depreciation is thus allocated to the various processes in the carrying out of which the plant has Effect on profit and loss account. been deteriorated, it will not, of course, appear as a separate item in the profit and loss account, but will diminish the gross profit by increasing the cost of production of the articles manufactured, instead of showing larger gross profit I only to be reduced by a general charge for depreciation, as is the case when a lump sum is charged to profit and loss account in respect of such depreciation. Prime cost and depreciation. The explanation of the prime cost system given in Chapter IV. was not complicated by a reference to the subject of depreciation, which, at that stage, would have been inconvenient; but no difficulty will be found in assimilating this method of charging depreciation with that of recording cost as described in that chapter, and thus ascertaining cost of production. Depreciation patents, &c. It should be mentioned that there are items in the books of a private firm or joint-stock company to which no general rule of writing off is applicable. of good-will, Such are the cost of good-will, patents, trade marks, copyright designs, &c.; for although, as in the case of patents, the life of the asset is clearly defined, the incidental advantages derived from the possession, for a term of years, of a valuable monopoly do not necessarily cease upon the expiration of the term of the patent. On the contrary, the value of the goodwill may increase although the term of the patent is expiring. Assets such as those should be considered as having a combination value, differing altogether from their value per se. The obvious rule, therefore, is that in the balance-sheet such assets should appear at their cost value, and need not be written down unless their realizable value as integral falls below their cost value. may be accounted for by the as explained on p. 102, but until such estimated increased value is realized it should not be considered as an element of profit. parts of a going concern Any estimated increment creation of a special fund, Utility of Stock CHAPTER VII. SURVEYS. THE most evident utility of the Stores and Stock Ledgers, kept in the manner described in the preceding chapters, is that by their means the storekeeper, warehouseman, and others concerned, are able to ascertain what is the quantity of any particular commodity on hand at any given time, without the delay and expense involved in the process generally known as "taking stock." The ability to obtain this information in an accurate and speedy manner has a very wide and important bearing upon the general accounts of the firm. Unless it is at command it is impossible, in undertakings of any magnitude, to determine, even approximately, what the result of the business is until a survey has been made. It is claimed for the system of accounts we have explained in these pages, that one of its chief advantages lies in the fact that it obviates the necessity of taking stock simply Stock- for the purpose of drawing up a balance-sheet. taking for The economic value of this advantage to principals whose business is liable to many vicissitudes, can scarcely be overrated, for it removes one of the most powerful obstacles to the frequent closing of Balance sheet. the books and ascertainment of the results of the business. There is no doubt that save for a survey being a very troublesome and expensive matter, balance-sheets would be made up much more frequently than is usually the case, and that proprietors would be kept more fully au courant with the tendency of their business that can be the case when the books are closed only at long intervals of time. Under the methods of book-keeping here advocated, a survey, indeed, would simply serve the purpose of substantiating the results deduced from the books of account, and it is this feature which, perhaps more than any other, distinguishes a proper system Many Fac- of Factory Accounts from the methods genetory Ac- rally adopted. Factory books, when kept, are memoranda. often for the most part of the nature of memoranda, being simply methods of book-keeping by single entry, and lacking both in coherence and continuity, inasmuch as they are merely disconnected entries, which can be verified and assimilated only by means of the periodical surveys. counts mere Ledger. Unless Stores and Stock Ledgers are kept in some such way as described, it is imperative that the survey of all articles, if it is to answer any useful purpose, should be made at one time, for, in the absence of factory books, the only comparison of which Survey and Commercial the result of the survey admits is with the totals of the stores and stock accounts of the Commercial Ledger; but even this comparison can only be one of book values and not of quantities or measurements, and an effective verification of the details of the survey is altogether out of the question. If the survey is simultaneous it is necessary either to suspend for the time the issue and receipt of materials, or to make |