320 JOURNAL OF FORESTRY 



3. Allowance for the depletion of the timber as it is cut. This is 

 necessary unless the stumpage value of the remaining timber has in- 

 creased sufficiently in value to offset the loss due to cutting, and this 

 increased stumpage value is being realized in the increased 'price 

 charged the manufacturing plant for logs. 



4. Depreciation due to the fact that the plant is dependent on a 

 wasting asset. In some cases the plant will wear out before its 

 supply of raw material is exhausted. In such a case the depreciation 

 due to wear and tear would exceed this one and completely cover it. 



If an operating corporation wishes to grow forests, in order to 

 lengthen the life of its operation, or even desires to put its operation 

 on a permanent basis, it may finance the venture in the following ways : 



1. By setting up an entirely new set of capital accounts. As far as 

 the regular business is concerned, all the forms of depreciation listed 

 above would continue necessary. The old land accounts would be 

 credited with the value of the cut-over land and the new capital land 

 accounts would be charged with it at the same value. The cost of 

 formation and annual costs of taxes, protection, and carrying charges 

 would be charged to these new accounts. The money for paying these 

 expenses would be raised by the issue of more stock, bonds, or possibly 

 by issuing dividends in the form of scrip. 



2. By using the depletion allowance. In other words, no depletion 

 allowance would be made because the forest would be maintained at 

 its original value. 



3. By using both the funds for depletion and the depreciation due 

 to the business being based on a wasting asset. This is sound only 

 when these funds are sufficient to establish permanent forest manage- 

 ment or when enough extra capital is added so that a permanent supply 

 of raw material can be relied upon. This is evident when one remem- 

 bers that these funds were reserves which were necessary because the 

 business did not have a permanent supply of raw material. Obviously, 

 they must be held in reserve until a permanent supply is assured. The 

 extra capital, if any is required, must be charged to capital accounts. 

 This is practically the plan suggested by Kirkland^ and he is confident 

 that it can be put into operation, under conditions, as he knows them 

 in the West, without the use of extra capital, and that some of the 



3 Kirkland, Burt P. : Continuous Forest Production of Privately Owned 

 Timberlands as a Solution of the Economic Difficulties of the Lumber Industry. 

 Journal of Forestry, Vol. XV, pp. 15-64. 



