24 BULLETIN 111^ U. S. DEPARTMENT OP AGRICULTURE. 



region, to discuss intelligently their costs of production, especially the 

 details. As a result, a feeling has arisen within and without the 

 industry that a profitable field of endeavor would be the investigation 

 of the basic principles which underlie costs and cost keeping and the 

 preparation of a uniform cost sheet. Few question that a standard- 

 ized cost-keeping system is practicable and would be of lasting value 

 to the logging industry. 



DEPRECIATION. 



Until recently many operators followed the unwise and danger- 

 ous practice of taking no account of depreciation. The method of 

 handling this account is optional with the operat(5rs, no provision 

 for depreciation being prescribed by law; but the passage of the 

 Federal income tax law has made it desirable for all operators to 

 write off on their books a certain amount. 



Depreciation is the shrinkage in value of an asset that results 

 from its use. Lessening of the value of assets may be due to ordinary 

 wear and tear, to physical deterioration, to inadequacy for the cur- 

 rent needs of an operation, or to the exhaustion of available timber. 

 The amount of such deterioration is charged against the operating 

 profits, and so can be considered as an amount paid out of the pro- 

 ceeds of the business. The best concrete illustration is a sinking 

 fund withdrawn from the proceeds of the business at regular inter- 

 vals, deposited in a special account, and used to pay off bonds as they 

 become due. In National Forest stumpage appraisals depreciation 

 is reckoned as if charged off and withdrawn from the business at the 

 end of the year. It is a sum, prorated over every thousand feet of 

 timber cut, which in the course of the operation pays back the re- 

 duction in value of the fixed investments. 



The rate of depreciation varies widely with the nature of the 

 investment. Improvements are stationary, and so can be used only 

 where they are built. They include all buildings, wagon and pole 

 roads, railroad grades, bridges, splash dams, etc. The rate of de- 

 preciation on each improvement depends primarily upon the amount 

 of timber which it can properly be used to log. When all of the 

 tributary timber is removed, the improvements have no residual 

 value. Improvements located with reference to large supplies of 

 timber, like logging railroads, may have a very long life. Their 

 rate of depreciation is correspondingly low. Equipment can be 

 moved from place to place; so its depreciation depends primarily 

 upon wear and tear, or the length of the ordinary working life. It 

 includes tools, steam logging machinery, cables, railroad steel, rolling 

 stock, etc. The working life given to different equipment in this 

 publication is intended to represent current industrial experience in 

 the region. 



