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has been used in financing the property to the same extent as the tax assessed upon property owned, and the amount of the tax is practically the same, whether the company owns or leases portions of its property. In sharp contrast to property tax, earnings affect the amount assessed, and for this reason the tax is similar in some respects to those operating expenses which are sensitive to variations in traffic.

Frequently, however, the "tax" upon earnings takes a different form from that levied by municipalities, and may be a charge made by the company owning the terminal, for the use of tracks and stations at terminal points. If the gross earnings include the tax or terminal charge which has been earned, the amount is charged against operating expenses when paid for terminal facilities. Some accountants do not wish to include this portion of the fare collected, in earnings. One reason is that the State might thus receive a tax twice upon the same earnings, once upon the earnings of the company owning the terminal and again upon the earnings of the company paying for terminal facilities.

It does not necessarily follow that the method of accounting shall be changed on that account. The writer is familiar with an instance which occurred in an eastern state illustrating the point. The system of accounting in use required that the total fare collected be included in the gross earnings of the company using the terminal facilities, but for tax purposes the amount paid the terminal-owning company was set out in reports to the State board as a deduction from gross earnings. The propriety of this action was admitted, and the state officials allowed the deduction.

The amount of dividends to be paid is frequently not decided upon until after the close of the fiscal year. There are cases, however, when dividends are paid by a lessee company, upon certain classes of stock of subsidiary companies.

In the latter event the dividends are considered a part of the rental of the leased lines, and the amount accrued each month is grouped with the other fixed charges deducted from income.

CHAPTER XX.

ADDITIONS AND BETTERMENTS.

The accountant has little difficulty in deciding how expenditures for additions to road and equipment shall be handled in the accounts. If a branch line is constructed or some additional rolling stock purchased to take care of increased traffic, the assets of the company are increased thereby, and the cost of the additions are carried into the capital accounts.

A different problem is met in betterments or reconstruction. For example, 60-pound rail may be replaced by rail weighing 80 pounds to the yard, and the ties be renewed, causing considerable expenditure for material and the labor applying it. Or a light wooden bridge may be replaced by heavy steel girders on concrete piers and abutments.

Thos. L. Greene lays down as an axiom, in "Corporation Finance," that " no additions to the property should be considered betterments and charged to capital, unless they increase the productivity or earning capacity of the plant," and this is generally considered a good working rule.

Not all the cost of new and more costly construction replacing inadequate road and equipment is carried to capital accounts, but an amount sufficient to represent the increased property investment is so treated. The usual plan of ascertaining the proportion chargeable to each account is to find the difference in cost of the types of construction represented. Thus, the amount chargeable to capital account in the heavier track construction mentioned, would be the difference between the cost of the 60-lb. rail and the 80-lb. rail which replaced it. The remainder of the cost of new rail is then charged to operating expenses under the proper renewals account, and the proceeds received from the sale of the old rails are credited to the same account.

If the financial policy of the company requires that part of the cost of betterments be deducted from income or surplus, the

foregoing plan may still be used to determine the amount that

is chargeable to expenses. The important feature of accounting for additions and betterments, after the line of demarcation between them and operating expenses has been drawn, is to secure a clear record of the transactions affecting the accounts.

The engineering department usually makes an estimate of the cost of a proposed piece of work, and these estimates of authorized undertakings reach the office of the auditor, who thereupon issues job order numbers for each. If the work undertaken is of some magnitude sufficient sub-titles or numbers are provided to take care of all the detail that will be required.

The labor and material are charged to these accounts as used and during the progress of the work, the auditor keeps in touch with the cost records, in order that expenditures in excess of estimates may be called to the attention of the proper officials.

The detail figures are frequently referred to later, when comparisons are being made of the costs of different types of construction and of the same type under different conditions.

CHAPTER XXI.

CAR MILES, CAR HOURS AND OTHER UNITS.

One of the most widely considered of the tests used to determine operating efficiency is the ratio that operating expense bears to earnings. The very fact that operating expense ordinarily absorbs more than one-half of the earnings has made the fluctuations in the percentage seem of striking importance to the casual investigator.

The careful examination of details for the purpose of ascertaining efficiency and comparing the reports of different properties, has resulted in the use of various units, some of which will be briefly mentioned in the following pages.

A small cost unit that is widely used is the car mile. While the passenger mile is a much smaller unit, the difficulty and expense of compiling statistics based upon it, have prevented its use to any great extent.

The car mile is one of the most important units used by steam and electric railways. The steam roads have not had the troublesome electric railway problem of deciding the status of "trailer" miles as the steam locomotive can not be likened to the electric motor car carrying passengers. The electric locomotive, as a tractive vechicle, comes in the same category as the steam tractor, but the use of motor passenger cars is far more prevalent in electric railway operation.

If the car mileage unit is used to determine the power cost, it follows that the trailer, when practically a mere extension of the motor passenger car, is not considered in computing the mileage. If motor-cars are run in trains, with multiple unit. control, the trailer is no longer a trailer in the sense ordinarily considered, and the train mile may be substituted as the unit of cost. The weight of cars and the consequent size of motors is a factor to be considered in the power cost, for the per mile cost of a single-truck city car compared with that of a large high-speed interurban car and trailer will give startling results.

Mileage statistics are used to a large extent in judging the worth of different makes of car-equipment parts. Trolley wheels, car wheels and brake shoes are sometimes bought upon a mileage basis, or with guaranteed service. It is also desirable to know what the working life of axles, motors, etc., has been in individual cases.

The gross earnings and operating expenses per car mile are interesting, and if the local conditions are given careful consideration these statistics may be found of value in indicating where traffic requires stimulation or expenses curtailment.

The various uses to which the statistics are put have their effect upon the methods used in compilation. The mileage of city cars may be had from the reports of starters, barn foremen, superintendents or conductors. If a starter reports mileage when the car starts out on a trip, there may be discrepancies in the reports, caused by the fact that cars get blocked, detour, and in other ways do not follow the schedule. The conductor stays with the car during all its wanderings and his reports are consequently more likely to be accurate.

The mileage of interurban cars may be compiled from the dispatchers' train-sheets if these are used. If not, some one of the plans for obtaining city mileage may be used. In order that the accuracy of the statistics may be tested, it is well to have some different general check upon the figures. The regular schedule mileage may be compared with the division or line totals shown, and striking differences investigated.

Interurban cars that use the tracks of the city company in entering a terminal are sometimes charged as rental a percentage of the fares collected or of the cost of maintaining track and line, within the city limits. If the city power is used it will be necessary to deduct the mileage made upon city tracks from total mileage, to determine the power-cost per mile.

The "dead" mileage, or mileage made by cars between carhouses and terminals is not usually productive of revenue and for that reason it is sometimes omitted. The non-revenue feature is offset by so many other considerations that the mileage can not be ignored if accurate results are to be secured. The wages of the train crew start with the movement of the car, and the consumption of power is concurrent with the first turn of the controller handle. The equipment records would be