Some Issues Involved in 'Original Cost'

Abstract Prescribed accounting systems for utility companies followed as a logical and perhaps inevitable result of the large-scale consolidation and merging of these enterprises in the 1920's and the manipulation of property accounts that was frequently involved. After the stock market crash in 1929 there was a clearly defined movement to re-examine accepted accounting procedures, in order to prevent the possible recurrence of such a disaster. Public utility accounting was subjected to governmental scrutiny early in this period, and in the accounting systems prescribed there were stringent requirements as to the determination and recording of property costs, with particular emphasis placed upon disclosing original construction cost. It may be added that the present cost provisions of the system would accomplish the same results as the proposed changes if there were no fluctuation in prices in the economic system. Building on the hypothesis that prices are permanently maintained on a stable level, it is obvious that the capital outlay necessary to construct a given plant at any time will remain at the same amount.