To sum up, therefore, it appears that there is still grave doubt with regard to the legal possibilities of a Trust Company declaring dividends in the face of a shrinkage in the value of capital assets; and although, so far as the authorities have hitherto gone, it would appear that under some circumstances such dividends may be legally declared, it is, on the other hand, certain that the declaration of such dividends is a direct violation of every principle of sound finance, and should at all times be discouraged by the Auditor, who should make sure that the true position of affairs is sufficiently revealed to the shareholders, either upon the face of the accounts or by a special clause included in his certificate. CHAPTER IV. SPECIAL CONSIDERATIONS IN DIFFERENT CLASSES OF AUDITS. (Continued.) IV. GAS AND WATER ACCOUNTS.-(a) GAS COMPANIES. It is not essential that a Gas Company be incorporated under special Act of Parliament; but, as it can by no other means obtain power to pull up roads for the purpose of laying down or taking up mains, &c., it is very unusual to find a company of any importance not so incorporated. In such cases, however, as do exist, the company is under no special statutory obligation with regard to its accounts, but in general respects the Auditor's duties will be the same as those of the Auditor of a company incorporated under a special Act. In the case of a Gas Company especially incorporated, it is, of course, necessary that the Auditor should make himself thoroughly acquainted with the particular Special Act; in it he will find provisions as to share and loan capital, the rate of dividend or interest to be paid thereon, the standard price of gas, and other particulars which will have to be borne in mind. He will also find certain General Acts incorporated with the Special Act, and with these he must make himself thoroughly acquainted in so far as they affect his duties. The General Acts above referred to are as follow: The Companies Clauses Consolidation Act 1845. - The Gas Works Clauses Act 1847. The Town Improvement Clauses Act 1847. The Sale of Gas Act 1859. The Sale of Gas Amendment Act 1860. The Metropolis Gas Act 1860. The Land Clauses Consolidation Amendment Act 1860. The Metropolis Gas Amendment Act 1861. The Companies Clauses Act 1863. The Sale of Gas (Scotland) Act 1864. The Companies Clauses Act 1869. The Gas and Water Works Facilities Act 1870. The Gas Works Clauses Act 1871. The Municipal Corporations (Borough Funds) Act 1872. The Gas and Water Works Facilities Act 1870 Amendment Act 1873. The Conspiracy and Protection of Property Act 1875. The Public Health Act (Gas Supply) 1875. The Burghs' Gas Supply (Scotland) Act 1876. The Lands Clauses (Umpire) Act 1883. Those sections of the above Acts that refer immediately to the Auditor's duties, or to the form of the Accounts, will be found reprinted in Appendix "A." The form of accounts given in Schedue B of the Gas Works Clauses Act 1871 applies to all companies whose Special Act incorporates either the 1871 Act, or the Gas Works Clauses Act 1847. The latter Act and its amendments also make provisions with regard to the formation of Reserve and Insurance Funds, and provide for the issue of new capial under what are known as the Auction Clauses. The appropriation of profits under the sliding scale is also introduced. One of the most important matters, from the Auditor's point of view, is the division of all expenditure into two classesCapital and Revenue. The wording of the statutory form of accounts will probably sufficiently indicate the basis of this division; it remains, therefore, to say that, perhaps, the Auditor's most important duty is to see that this basis is maintained. It is not, however, always possible for the Auditor to judge as to the correctness with which, say, the cost of an extension has been apportioned as between Capital and Revenue; nor, indeed, is it necessary that he should so constitute himself an engineering expert. He will, however, require to see that the company's engineer has certified the apportionment to be correct, and that the expenditure on Capital Account has been passed by the Board. In addition, it is desirable that he should satisfy himself that the principle followed by the engineer in arriving at his apportionment is a sound one. There is, properly speaking, no "safe side" in these matters-an undue charge to Capital is unfair to the proprietors, while an undue charge to Revenue is (through the operation of the sliding scale) an injustice to the consumers. The following examples of apportionment will, however, be found useful, as indicating, in general terms, the correct method of arriving at the amount chargeable against Capital, and against Revenue, in any special case that may arise: NEW WORKS (including extensions):-Capital. NEW WORKS IN PLACE OF OLD WORKS: Charge original cost of old works pulled down, less value of old materials, against Revenue; charge the remainder against Capital. (This amounts to debiting Capital with total cost, debiting Revenue and crediting Capital with original cost of old works, and crediting Revenue with value of old materials sold.) CONVERSIONS: In a similar case to the last, except that certain old materials, instead of being sold, are used for other purposes on the works, treat the particular department of Capital Expenditure as the purchaser of the old materials in question, debiting it with the value of the materials and the full cost of conversion (if any). The income of a Gas Company consists of Gas Rates, Meter Rents, Residuals sold, and generally profit on Fittings and Rents, in addition to Transfer Fees and Interest on Investments. The collection of Gas Rates and Meter Rents are best checked in totals (in the manner shown under FIRE INSURANCE ACCOUNTS, care being taken to fully test both allowances and arrears), the total receivable being arrived at from the State of Meters Book, which will show the total amount of gas consumed and what meters are on hire. The residuals sold cannot well be checked as to quantity (save by comparing the results of various working statements), but, of course, the Auditor may, and should, check the collection of the amounts debited. The same remark applies to fittings, which will almost invariably be found to form a part of a Gas Company's business, although no mention of the circumstance will be found in the statutory form of accounts. It may be added that it is best merely to state the profit arising from fittings on the credit side of the Revenue Account (rather than to credit Revenue with Income, and to debit it with Expenses), as there is nothing gained by showing the whole world what percentage of profit has been made. The two leading items of expenditure arise from stores and wages; the latter has already been considered in Chapter I., and the former in Chapter II., and need no further consideration beyond saying that both must be fully vouched for, and carefully tested. All Cash Book entries must, of course, be vouched, and the additions checked and the balance verified; also, all the General Ledger postings should be called back. Some companies charge all renewals and repairs against the Revenue of the year in which they are executed, but a more scientific method is to set aside a sufficient sum annually for renewals, and to charge their cost against the fund so created. The investments held against Reserve, Insurance, and (if any) Depreciation Funds, must be verified by an inspection of the securities held. This leads up to the consideration of the Depreciation Fund (in reality a Sinking Fund), which must be accumulated by |