SHALL WE CAPITALIZE OUR FORESTS? 219 



which the writer felt was implied by the context. In order to avoid 

 further confusion the reader will pardon a brief discussion of capital- 

 ization, depreciation, and the present methods of financing both private 

 and public forests, before he proceeds to the discussion of the efifect of 

 different policies in regard to the above mentioned fundamental 

 questions. 



There are several different conceptions of capital and capitalization. 

 In a strictly economic sense, all wealth is capital and all property is 

 capitalized. Chapman^ contends that "income is the key to capitaliza- 

 tion" while Cole^ contends that "no theoretical accounting aims support 

 any view of capitalization other than cost." Both distinguish carefully 

 between value and cost. One is speaking from the field of forest 

 valuation, and the other from the standpoint of the accountant. From 

 the accountant's point of view, cost is the only basis for original 

 capitalization because capital assets must equal capital liabilities (costs). 

 The costs charged to the capital accounts must be offset by capital 

 funds which, in the case of a stock company, may be raised in one 

 of three ways : Issuing and selling capital stock, borrowing, or issuing 

 dividends in the form of scrip. By means of depreciation funds the 

 capital liabilities are reduced as the property decreases in value. Thus 

 the measure of the amount of capitalization at any time is the amount 

 of the liability which is charged against the property. If the depreci- 

 ation funds have not provided for the decrease in the capital liabilities 

 as fast as the property has depreciated in value, the difference between 

 the two must be charged off as a loss. Thus the importance of allowing 

 for proper depreciation becomes evident. 



The forms of depreciation for which a company in the destructive 

 lumbering business must provide in order to protect the capital of its 

 bond and stock holders, may be classified as follows : 



1. Maintenance. This is really a cost of operating and is usually 

 so charged. 



2. Depreciation due to wear and tear. In some ways this is similar 

 to the cost of maintenance, for if a plant is fully maintained this form 

 of depreciation does not exist. When not needed in any one year, it 

 may be put into a reserve fund from which replacements of worn out 

 or out-of-date parts of the plant will be paid for. 



1 Chapman, H. H. : Forest Valuation. P. 4G. 



2 Cole, William Morse : Accounts : Their Construction and Interpretation. 

 P. 210. 



