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<br />. oepreciation Expense <br /> Page Two <br /> Because of the nature of depreciation, if the costs for depreciation and <br /> the costs for purchasing new capital equipment were to both J:e included <br /> in the enterprise J:udgets, the effect would J:e charging for the same <br /> thing twice. 'Ihe J:udget should have one or the other rot not both. <br /> Depreciation, as defined by the goverrnnental a=unting standards book <br /> titled, Goverrnnental A=untim. Auditim and Financial Reoortim <br /> (GAAFR) states: <br /> "Depreciation is an element of cost resulting from the service of long- <br /> lived assets in an economic organization and represents the loss in <br /> asset value because of wear, deterioration, obsolescence, and action of <br /> the physical elements." In a=unting for depreciation, the cost of a <br /> fixed asset, less any salvage value, is prorated over the estimted <br /> useful life of such an asset, and each period is charged with a portion <br /> of such cost. ~ough this process, the entire cost of the asset is <br /> ultimtely charged off as an expense; hence, an expense for depreciation <br /> should J:e included in the J:udget. <br /> As new equipment is purchased, each year a portion of the cost is <br /> written off through depreciation until its useful life is used up. 'Ihe <br />. depreciation expense also includes the water and sewer systems in the <br /> ground. Each year a portion of the cost for the respective systems is <br /> written off and also charged to the depreciation expense. <br /> Depreciation expenses are not recorded in the General Fund because no <br /> constructive purpose would J:e achieved by doing so. Goverrnnents are not <br /> faced with the same requirements for profit and loss determination as <br /> privately-owned enterprises. Goverrnnents do not pay taxes based on <br /> income; goverrnnents are not traded or sold as are private business, and <br /> any excess of revenues over experrlitures is not available for <br /> distr:ib.1tion to citizens and troq:layers in the manner that corporate <br /> profits are available for distr:ib.1tion to stockholders. Goverrnnents <br /> exist to provide public services and regulatory activities on a <br /> continuing basis. 'Ihe general experrlitures in=ed have no causative <br /> relationship with and do not generate any general revenues. <br /> TJSjts <br /> M92-08 <br />-.- <br />- .... <br /> ---- <br />