STUMPAGE VALUES 173 



similar quality to that appraised removes this objection. Aver- 

 age mill run prices for several mills in a region are serviceable 

 only when the timber is remarkably uniform in quality and 

 grade. 



173. Depreciation. Depreciation plays so much more im- 

 portant a part in stumpage appraisals than in forest pro- 

 duction that it should be given special consideration in this 

 chapter. 



Depreciation is a sum written off or subtracted from the cost 

 of capital assets, to correspond roughly or approximately with 

 a shrinkage or disappearance of value through diminishing use- 

 fulness. An investment in a fixed or durable asset is not an 

 "expense " at the time of purchase, but an exchange of cash for 

 another form of property. The real expense is incidental to 

 the use or service which this property yields, by reason of which 

 it diminishes in value. Depreciation on property for which 

 there exists a continuous need corresponds to actual deteri- 

 oration and final discarding of the article as worn out. But 

 where the period and amount of use is limited and the property 

 will outlast its usefulness, the residual value will coincide with 

 the value of the material of which it is composed, for removal 

 or use in some other line. This shrinkage in value not accom- 

 panied by physical deterioration may be termed "amortiza- 

 tion." 



When depreciation is added to other expenses, the sum gives 

 the total actual outlay or cost of the business, in which total 

 the investment in capital assets subject to depreciation is ex- 

 cluded, as not constituting a cost. 



A depreciation fund is a fund created by the setting aside 

 annually, from net income, amounts intended to eventually 

 equal the total depreciation ( 73). When the period is known 

 with reasonable certainty, the amounts annually needed to 

 accomplish this purpose can be computed in advance. 



Let A = original capital investment. 



W = final or wrecking value. 

 D = total depreciation or A W. 

 n = years in period. 



