18 BULLETIN 559, TJ. S. DEPASTMEITT OF AGRICULTURE. 



charge equal to one-twelfth of the yearly amount computed upon the 

 above basis. These amounts should be charged to " Depreciation 

 on buildings" and credited to " Reserve for depreciation on build- 

 ings," and, as hi the case of all other expense accounts, the monthly 

 amount should be transferred to the monthly operating statement 

 and there deducted from the gross income. Because of the peculiar 

 nature of the business, the average rate of depreciation on machinery 

 and equipment in creameries should be placed at as high a rate as 

 15 per cent annually. A reserve for one-twelfth of that amount there- 

 fore should be set up monthly and charged against the operating 

 statement. It is essential that a "Reserve for depreciation on 

 machinery" should be set up in order that the plant be kept at its 

 highest efficiency. Poorly kept machinery will often affect the value 

 of the product manufactured and the expense of keeping machinery 

 in proper shape is, therefore, more than offset by the possible loss of 

 income through its depreciation. Reserves for depreciation of prop- 

 erty, whether buildings, machinery, or equipment, should be charged 

 with replacements, but ordinary repairs should be charged to the 

 repair account. 



RESERVE FOR SINKING FUND. 



The laws of some States require that cooperative organizations set 

 aside each year a certain percentage of the capital invested to pro- 

 vide a reserve for the retirement of the capital stock. Creameries 

 in those States are obliged to comply with the requirements of the 

 law and to reserve an amount annually in accordance with its pro- 

 visions. In a large number of creameries, particularly among those 

 located in the State of Minnesota, a reserve is set aside monthly in 

 what is termed a sinking fund. The financial transactions are then 

 divided into a general fund and a sinking fund, the former including 

 all receipts of cash and all disbursements for butter fat, supplies, 

 and operating expense. A sinking fund, as a rule, covers repairs to 

 machinery, taxes, insurance, and dividends on stock, usually termed 

 "Interest on stock." The rate per pound of butterfat for reserve in 

 this way varies from one-fourth of a cent to 1 cent. The purposes 

 for which this fund is established vary greatly, for, while some organi- 

 zations charge the sinking fund with the items recorded, in others 

 the full amount is applied annually to the interest on and the prin- 

 cipal of the indebtedness of the organization, while taxes, insurance, 

 and repairs are prorated over the year and included in operating 

 expenses. In general, it may be recommended that it is better 

 practice to set aside separate reserves for the different forms of 

 depreciation which may occur, since the carrying of many charges in 

 one reserve account may lead to an insufficient amount being set 

 aside to offset the wear and tear on the whole plant. Aside from 



