apparent ground for alarm on this account, as the government wishes only to know the actual cost of operating, and probably will not care whether the provision is represented by cash, securities, or by investments in improvements or extensions to the system. As to the latitude allowed the railroads in fixing the rate of depreciation, the government undoubtedly permits each road to fix its own rate for the reason that it is best qualified to do so, as its own experience should show what provision is necessary. The provision should, however, be made upon a scientific method, based upon the actual experience of the road in former years.

The practice in vogue on some roads, as stated by Mr. Blauvelt, of providing for accrued depreciation on equipment at the end of the life of such equipment by charging to operating account and crediting to "Replacement Account" the cost or record value of the equipment actually put out of service, and when new equipment was purchased charging to the "Replacement Account" an amount necessary to equalize the amount at credit of that account, the balance being charged to Additions and Betterments or to Capital Account, while not altogether free from criticism, is much preferable to the method of providing for depreciation only in prosperous years. Under this method the depreciation might tend to equalize itself after a number of years if the equipment of the road were extensive and utilized equally. It is but a makeshift, however, and there should be no excuse for the employment of such primitive methods in these days of enlightened business economy.

Mr. Blauvelt, while apparently admitting that depreciation does not occur in the case of roadway and structures, opposes any attempt to include this item in operating expenses, solely for the reason that it would be an extremely difficult matter to make satisfactory working plan covering rails, ties, bridges and other structures. Mr. Blauvelt is better qualified than we to speak upon such a subject, but it surely is not impossible to determine the rate of depreciation of these properties, and an item as important as depreciation should not be ignored because of the difficulty of fixing the rate. The experience of American railroads with their enormous mileage and years of service certainly furnish sufficient data to enable any management to estimate very closely the cost of depreciation on rails, ties, bridges and other structures as well as rolling stock.

Further, we wish to mildly criticise Mr. Blauvelt's declaration with respect to the uniform classification of operating expenses that "the one thing most to be regretted is that the classification was made at all"; that "unfortunately the change came at a time when, on account of the business depression, it was of the most vital importance to carriers to know the correct comparative details of their operating expense, and accurate comparisons have been almost impossible, even with a considerable expenditure of time and money." Is this lament due to the fact that the railroads have been compelled to include depreciation in their operating costs, and are thus unable to show the usual "low cost of operating" that has heretofore prevailed in lean years?

To quote Mr. Blauvelt, "To supervise means more than to merely oversee; it means to oversee with authority to direct or regulate" and in these days of self-perpetuating management of railroads it is well indeed that the governmental power is invoked to charge operation expense to the cost of operating, thus insuring that all dividends paid should be profits and not a return of capital under the guise of profits.

In conclusion we wish to call attention to the following article published in the financial supplement of the Evening Post, New York, under date of July 11th, 1908, with special reference to the causes of the troubles of the old Baltimore and Ohio Railroad:

Were the Baltimore and Ohio directors warranted this week in declaring the regular semi-annual dividend of 3 per cent. on the common stock? This was the statement given out on Thursday:

"The earnings for the year fell short of meeting the full dividend on the common about $1,300,000, and the difference was paid out of profit and loss surplus, leaving about $18,000,000 still to the credit of that account."

No one doubts that the Baltimore and Ohio of to-day is a magnificent property. But that is all the more reason why it should seem very strange that some of those who are still in the board should apparently have forgotten the experience of twelve years ago. Early in September of 1896, despite the profit and loss surplus of $23,737,000 then existing, Stephen Little was employed to go over the old Baltimore and Ohio's books. Before the end of that month the announcement that a receiver had been appointed for the company came like a bolt out of the blue. In his report Mr. Little gave the following causes for the Baltimore and Ohio's trouble: I. The inflation or overstatement of net income.

2. The mischarge of worn out equipment to profit and loss.

3. The capitalization of charges to income.

4. The capitalization of so-called improvements and betterments of leased lines.

5. The payment of unearned dividends.

6. The understatement of liabilities, etc.

Legal Training for Accountants.

BY HAROLD Dudley GreELEY.

In a former article accountancy training for lawyers was considered, and, in view of the new mutuality of accountancy and law, it is now in order to note some of the results of legal training for accountants. The subject is not academic. Schools of accountancy include courses in law, the various state examinations for licenses to practice as certified accountants are based in part upon law, and there are among practicing accountants a considerable number of lawyers. While there is not the slightest chance of either's profession seriously encroaching upon the field of the other, there seems to come real benefit to both from the interchange of practitioners, and the benefit to accountancy is no less real than that to law.

On the threshold of his practice as an accountant in New York, a man is confronted with the legal requirement that he pass an examination given by a state board before he be certified as an able accountant. Of the four subjects of this examination, one is Commercial Law. During the eleven years of the Board's existence, and including the examination of February, 1908, there have been asked three hundred sixty law questions, which, roughly classified, relate to the following subjects:

These questions reveal the struggle which accountancy has had in adjusting itself to the new relation with law. They show that accountancy distinguished, in the main, to good advantage and selected those subjects most likely to be met with by its followers, but they also register a natural unfamiliarity with the sister subject, both in the scope of the questions asked and in their form.

Of these, but few have been catch questions. An example might be found in Question 6 of the Examination of January, 1901, which asks in part, "Can a foreign corporation avail itself of the statute of limitations of the State of New York in an action brought in the New York courts?" Aside from the fact that a violent stretch of imagination is required to conceive a case wherein an accountant could have any use for such information, the question itself could be answered offhand by but few lawyers in general practice. The case of Olcot v. Tioga R. R., 20 N. Y., 210, held, on a theory which may well be questioned on principle, that a foreign corporation could not avail itself of any statute of limitations. Later, Section 390 of the Code of Civil Procedure allowed a foreign corporation to plead the statute of its own state, leaving the Tioga R. R. case still in force as to the New York statute of limitations. Hence the present law appears to be that a foreign corporation may plead the statute of limitations of its own state but not that of New York.-Robertson v. Central R. R., 76 Hun., 444. This examination in law is conquerable by intelligent "cramming." As such preparation cannot in any fair sense be termed legal training, the requirement of this examination cannot be cited as a demand for the accountant's training in law.

In considering this object, two general truths are to be borne in mind. First, is to be recognized the fact that knowledge of law and training in it are beneficial to a person whatever field of activity he may enter. Consequently, only those benefits peculiar to the accountant need be noted. Secondly, it is not to be forgotten that breadth of training and culture may come from the conscientious pursuit of any science or art. Because of the latter, it may be urged that some of the benefits to the accountant from work in law may follow just as well from like training in some other science or art, but this does not in any way militate against the assertion that these benefits do result from legal education and training.

To determine the actual worth to an accountant of a knowledge of law, it is necessary to revert to his function. As a systematizer, he has but slight use for such knowledge, because legal irregularities are ordinarily only incidental to a business, and clerical work generally is non-legal. Therefore, in devising a system of books and accounts to record the transactions of an institution so that results can be determined accurately and speedily, there seldom

66

is occasion to provide for compliance with law. The peculiar case of railroad accounting under the rulings of the Interstate Commerce Commission will be discussed below. It is as an auditor, and particularly as an investigator, that the accountant can put to good use a knowledge of law. In the article on “ Accountancy Training for Lawyers," the breadth of the accountant's work was pointed out. The simple requirement that the auditor certify to the Balance Sheet and the Income and Profit and Loss Account places him in an anomalous position. Although admittedly he is not a lawyer, he cannot certify that there are so many assets and so many liabilities unless he knows that the transactions occasioning them are at least prima facie legally valid. Nor can he certify that such profits have been made and that such losses are chargeable against them if he does not know the rules of law applicable to the rights of the owners of the business, as, for instance, that dividends may be declared only out of surplus. In his case, the maxim "Ignorantia legis neminem excusat" must be translated, "Every one is presumed to know the law."

A glance at a Balance Sheet or an Income Account reveals the instances wherein the quasi legal judgment must be exercised. There is no asset Real Estate unless the business possesses good and sufficient deeds covering the property; there is no asset Notes Receivable unless there be properly executed instruments to comprise it; the asset Notes Receivable Discounted and its contra liability Discounted Notes Receivable furnish an example of provision for a contingent liability at law; there can be no Loans Secured by Mortgage unless the mortgages are binding at law; Capital Stock Outstanding presupposes a legal issue; Accounts Receivable and Accounts Payable are based on a knowledge of the statute of limitations; the difference between property purchased subject to a mortgage and property purchased with the assumption of the mortgage debt has always to be borne in mind by the auditor; accountings by executors and administrators are pregnant with questions of law; accountings by trustees are fraught with matters of apportionment; amortization is in its essence legal; depreciation, especially in mining cases, is controlled by law. In a word, it is fair to state that the verification of every asset and every liability and of most of the profit and loss charges and credits can be made only with an appreciation of the legal situations. The extent to which an accountant is justified