18 BULLETIN 559, U. S. DEPARTMENT OF AGRICULTURE. 
charge equal to one-twelfth of the yearly amount computed upon the 
above basis. These amounts should be charged to ‘“ Depreciation 
en buildings’ and credited to “Reserve for depreciation on build- 
ings,” and, as in the ease 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 busmess, the average rate of depreciation on machmery 
and equipment m creameries should be piaced 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 im order that the plant be kept at its 
hichest efficiency. Poorly kept machmery will often affect the value 
of the product manufactured and the expense of keepmg 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, machmery, or equipment, should be charged 
with replacements, but ordmary 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 
‘‘Intereston 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, msurance, 
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 oilset the wear and tear on the whole plant. Aside from 
