Having been told repeatedly during his many years of servicethat depreciation wa

Question

Having been told repeatedly during his many years of servicethat depreciation was charged "in order to provide for thereplacement of capital asset," a member of a government’selectric utility (Enterprise Fund) board of directors was visiblyupset upon being advised by the controller that it would benecessary for the utility to go deeply in debt "in order to replacesome of our capital assets." " How can it be true, " he asks, "that we have operated profitable each year, have an $850,000 NetAssets balance and total Accumulated Depreciation account balancesof $6,000,000, have never made transfers to the General Fund, andyet have cash and investments totaling only $100,000? What is yourresponse?

Explanation / Answer

Hey Janeye, 1 The utility might be operating profitably for ages. 2 The Net Asset balances & accumulated depreciation mightalso be correct. 3 But what about Liquid assets? 4 At the end of the day , it's liquidity that counts. You need Cash for replacing all those assets. So I would say the controller is not wrong

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