7 o 



FOREST VALUATION 



outlay, or profit and loss in the business of forest production, will 

 deal with the operations of the owner as a unit, and not with the 

 stand. If such accounts are kept according to the customary 

 forms, only actual cash outlay or income can be recorded. 

 The expenditures might be separated into capital account for 

 such items as land, and profit and loss for wages, taxes and 

 other current expenses. 



Unfortunately, both for the accountant and the proprietor, 

 such a business may fail to pay dividends for an extended period. 

 Whether it does so or not depends upon the condition of the 

 forest, for if the timber is already produced or grown, the income 

 is within reach. With a young forest, or plantation, additional 

 capital is required to cover every item of annual outlay in excess 

 of income. Since no dividends are produced, interest on bor- 

 rowed capital increases at a compound rate, actually when this 

 interest is also borrowed and paid, or by analogy, when its pay- 

 ment is merely deferred. 



Unless this condition is foreseen, and the enterprise floated 

 without borrowing, or the loan is negotiated on the basis of 

 deferred instead of annual interest, which is not customary, the 

 proprietor must pay this interest or bankruptcy ensues. No 

 existing custom of book-keeping will permit the charging of 

 unearned interest as a cost or actual expenditure, unless it is 

 paid out as above indicated. Hence, in the absence of borrowed 

 funds, the accumulating " costs" represented by deferred in- 

 terest ( 36) are not shown on the books. 



For a forest investment, representing, as it usually does, 

 timber in all stages of growth, some capable of yielding income 

 at once, while other portions require outlay for many years, it 

 will be necessary to keep a proprietary account in the usual 

 form, omitting the item of deferred interest on the owner's 

 capital. Such an account will eventually show net profits, 

 regarding interest as income (37), but it will not reveal actual 

 "cost," nor the profits of the undertaking (39) or enterpriser's 

 gain. 



92. Cost Accounts in Forestry. A serious defect in such 

 proprietary accounts is that the value of the element of time is 



