18 HASKINS & SELLS March
FOLLOWING the reproduction in the
January number of the Journal of
Accountancy of Mr. Wildman's paper entitled,
"Consideration of the Sinking-Fund
Method for Amortizing Franchises," Mr.
L. P. Collins of Collins & Company,
certified public accountants, Pittsburgh,
Pa., addressed a letter to the Journal of
Accountancy criticizing Mr Wildman's
advocacy of the straight-line method as
preferable, in amortizing certain franchises,
to the sinking fund method. We print by
courtesy of the Journal both Mr. Collins'
letter, and the rejoinder, which not only
refutes the criticism, but points out further
objection to the sinking fund method.
January 16, 1923.
Editor, The Journal of Accountancy,
135 Cedar Street,
New York, N . Y .
In some instances, at least, Mr. Wild-man's
arguments in favor of the straight-line
method of amortizing the cost of
franchises (set forth in the article "Sinking-
Fund Method for Amortizing Franchises"
in the January Journal) are upset by the
simple mathematics of the case.
A certain company paid $500,000 for
a franchise running over a period of eighty
years. The plant which it purchased at
the same time was equipped for its entire
functioning for the rest of its existence,
gross revenues and operating expenses, including
depreciation, were practically fixed
amounts, and the utilizing of the rights
comprehended by the franchise brought
into the company net cash earnings of
practically the steady annual sum of $50,-
000 throughout its life. It could have paid
dividends of $50,000 per year except for the
necessity of making good the capital invested
in franchise by the date of its
If it should provide for amortization by
the straight-line method it would write off
$6,250 per year, leaving only $43,750
available for dividends. Mr. Wildman's
article implies that the question of replacing
capital invested in the franchise is separate
and distinct from arriving at figures which
will measure the amount of amortization
applicable to the franchise from time to
Criticism and Rejoinder