Relation of maintenance to depreciation;

              Bulletin HASKINS & SELLS 11
from 25 to 35 per cent., there is still a long
stretch to the level of pre-war prices.
Whether or not this level will again be
reached is of course in question. The
public hopes the decline will continue.
Economists think that it will. It is, there­fore,
generally admitted that industry is
heading into a period where costs will be
more vital than ever before. The com­petitive
basis is being rapidly restored.
Cost reduction will be an economic neces­sity
rather than the result of an economic
incentive.
Many associations of manufacturers are
giving attention to uniform cost systems.
Not long since, the International Associa­tion
of Garment Manufacturers arranged
through its Cost Committee to prepare and
promulgate the instructions for installing a
uniform cost system for the use of its
members. The association has wisely laid
out a program of education the purpose of
which is to build up within the organiza­tions
of the various members a competent
staff which will facilitate the introduction
and operation of the system. A Central
Cost Council directed by a permanent
salaried head, the creation of Regional Cost
Councils, and the advisory assistance of a
professional firm are all contemplated in
the plan.
The value of this sort of thing is appar­ent.
The printing industry bears evidence
of the fact. It was among the pioneers in
the movement. No one who has occasion
to pay printers' bills doubts the service
which the cost system has rendered to the
printing trade. Printers' prices may be
high, but when the printers are forced to
stand a reduction they will know where and
how much they can afford to allow without
suffering an ultimate loss.
While the present tendency of manufac­turers
is toward association, and uniform
systems of one kind or another are the
natural consequence, the individual organ­ization,
whether in or out of an association,
must give increasing thought to the matter
of costs and their reduction. The present
economic situation demands it as a
matter of successful economic existence.
The executive without accurate cost
information is like a mariner without a
compass.
GREAT difficulty seems to be experi­enced
by the average person in
deriving a true conception of depreciation,
even from the most lucid definitions and
explanations, because of the element of
maintenance. It is difficult for him to
understand, why, if a unit of equipment is
maintained in a maximum state of operat­ing
service and efficiency, through repair
and replacement of parts, provision should
be made for depreciation. Such is the
explanation frequently offered as to why no
charge is made.
Depreciation has received probably more
attention at the hands of authors than any
other subject of accounting discussion. It
has been defined and redefined; explained,
elucidated, and illustrated. Court cases
have been cited and discussed. But appar­ently
we are scarcely nearer to a clear con­ception
than before.
Depreciation has been substantially
defined as "the decrease in the value of an
asset due to deterioration through lapse
of time, wear and tear, obsolescence, or
change of ownership." No reference, it
will be noted, is made to maintenance.
Neither deterioration, obsolescence, nor
change of ownership may be construed as
such. But unfortunately many persons
associate wear and tear with the defections
in operation which are corrected by repairs
Relation of Maintenance to Depreciation