The most difficult of all the items of delivery equipment to handle and value is that class represented by carriers and containers. These may be barrels, kegs, casks, bottles, baskets, and boxes, and are met in the brewery, dairy, bakery, laundry, and oil businesses. In some lines it is feasible and is the practice to charge the customer with the fair cost of the carrier, giving a return privilege with refund, dependent upon the condition of the returned carrier. This is good where applicable, although it necessitates having an adequate redemption fund which may be operated somewhat as a bank’s reserve is, i.e., only large enough for normal needs but capable of ready enlargement when the need arises. In other lines of business such a method of handling the container cannot be used. Here, as in the bottled milk trade, only experience will give a proper basis for estimating the depreciation through loss, theft, and breakage. The rate is almost invariably high, and liberal depreciation should be provided for. Taken all in all, throughout the various kinds of delivery equipment rates ranging from 16⅔% to 25% constitute fair average rates.
Patterns, Molds, etc.—Valuation
The last kind of equipment items requiring consideration is comprised of such items as patterns, lasts, molds, dies, drawings, electrotypes, wood cuts, forms, models, and the like. Wherever possible, these should be charged to the particular job for which they were made and not carried as assets. Unless there is a probability that the pattern, mold, etc., will serve for other uses than those for which it was made, the costs of making should be borne by the job on which it was used. This is very often not the case, however, and these items can be used for successive production. This is particularly true of a standardized product which is not apt to be much affected by change in style or the whims of a purchasing public. At the best, however, they constitute a treacherous and highly speculative asset and require careful handling to avoid inflation of value. Thus, it is easy in the publishing business to allow electrotypes, wood cuts, etc., to assume unwieldy proportions to the other assets. In manufactories of wearing apparel, the fickleness of fashions requires that patterns, lasts, and models be written down ruthlessly to the lowest possible figure. Here obsolescence is a big factor.
Under the limitations set, valuation should be based on cost with a very liberal periodic depreciation. The rate will average anywhere from 20% to 50%, though a lower rate may sometimes be proper.
Disposal of Assets
In connection with the handling of the asset and its valuation account, the disposal of all or some portion of the asset requires consideration. It is a fundamental principle that whatever is taken out of the asset account must be taken at the same cost as it was introduced into the record. Thus, an asset recorded at cost of $5,000 and sold for $4,500 would be shown as taken out of its account at $5,000, the apparent loss of $500 being recorded in a suitable expense account. If the asset has suffered depreciation between the date of purchase and sale, and the depreciation reserve shows this, that must be taken into account. Practically, it is best handled by transferring to the asset account from the depreciation reserve the part of the reserve applicable to the portion of the asset disposed of. Upon disposal there is an additional credit to the asset account of the difference between cost and the depreciation to date, i.e., the amount of this credit is the present appraised value of the asset sold, taking into account not only the recorded depreciation but the accrued as well. This brings out the true as distinguished from the apparent profit and leaves in the reserve only that portion which is applicable to the asset remaining.
An illustration will show the process of handling. Assume that the $5,000 asset is a portion of a $50,000 machinery account, for which the recorded depreciation reserve is $10,000 and the depreciation on the portion sold accrued to the date of sale is $200. The entries, necessary to effect the sale, are:
| (1) Depreciation | $ 200.00 | |
| Depreciation Reserve Machinery | $ 200.00 | |
| Accrued depreciation to date on the asset sold. | ||
| (2) Depreciation Reserve Machinery | 1,200.00 | |
| Machinery | 1,200.00 | |
| To write down to appraised value the asset sold. | ||
| (3) Cash | 4,500.00 | |
| Machinery | 3,800.00 | |
| Profit on Sale of Machinery | 700.00 | |
| To record sale of machine and the profit on it. |
CHAPTER XVII
BUILDINGS, LAND, AND WASTING ASSETS
Definition of Real Property