5 2 FOREST VALUATION 



cally opposite in character, yet custom and the practical 

 necessities of commercial accounting compel a consolidation or 

 compromise between these elements, as a result of which the 

 valuation of assets is sometimes based on cost, with or without 

 " expenses," sometimes on capital value, and often on both 

 cost and value. Sprague* both sums up and explains this 

 practice by the statement: "The aspect of assets as the present 

 worth of future services (capitalized income)! is entirely based 

 on opinion, while the aspect which regards them (assets) as the 

 resultant of services (cost) is based upon facts." 



It is evident that the proprietor is at liberty to compute his 

 potential profits by capitalizing future net income on any basis 

 which he sees fit, and may charge against this value a cost on 

 which he adds the unearned interest on his capital. He may in 

 this manner satisfy himself as to his economic status, and deter- 

 mine whether to sell, buy, or continue to operate. But in public 

 accounts a limit must be placed both upon inclusion of costs 

 not actually incurred, and of profits not yet realized. Hence 

 the full and perfect expression of economic status is seldom per- 

 mitted or secured by the commercial balance sheet, and must 

 be left to supplementary calculations in the nature of forecasts. 



In this economic comparison, the proprietary or right-hand 

 member of the ordinary balance sheet does not appear, and the 

 account deals entirely with the material assets. The balance 

 is struck between past costs, with interest, less past income, 

 and future value, discounted, less future expenses. Instead of 

 being upon the same side of the equation, necessitating an 

 arbitrary choice between absolutely opposite elements, the 

 equation lies between cost and value, and the balancing quantity 

 is the potential or unearned profit or loss, expressed as capitalized 

 or expectation value. 



The incorporation of a portion of this potential profit into 

 the regular balance sheet, previous to actual sale of the business, 

 is an action dictated entirely by motives of expediency. 



* " The Philosophy of Accounts," by Charles E. Sprague, 54 West 32d St., New 

 York, p. 41, Art. in. Published by author (at above address). 1908. 

 t Material in parentheses inserted by author. 



