Norwich Bulletin Newspaper, August 5, 1913, Page 9

The Net..Proflt.l Have Steadily increased--The Total ' Last Nine Months, $27,277.02=-A Change Recommended in Manner of Keeping Dgpaflmental Accounts @ June 9, 1913, To he Board of Commissioners of the Gas and Electrigal Department, Norwich, Connecticut. Gentlemen: — ,In accordance with your imstructions I have made an examination of the books and records of the Gas and Blectrical Department of Norwich, Connecticut, for the purpose of determining the Book Value of the plant at April 30, 1913, and the profits from operation from the period from July 1, 1904 to April 30, 1918, inclusive, Inasmuch as the books have been regularly. audited each year, you decided that it would not necessary for me to verify the correct- ness of the various books and accounts, and, therefore, 1 have taken the totals of the various accounts, as shown by the books, to be correct and I certify, only, that the various schedules and exhibits in- cluded in this report are in accordance with the books. * It was at first proposed to have an appraisal of the whole property made, in order to arrive at the exact value of the Plant, but limit- ation on the time allowed me for the work made this impossible, and that part of the work has been postponed. I present ferewith three Schedules and seven Exhibits as listed in Ay the index. PROFIT FROM OPERATION. The net profit for the .erior from July 1, 1904 to April 30, 1913, after deducting ,$176,666.66 ‘nterest paid on the Bonds oustanding agginst the Plant, amounted to $378,605.85 (exclsive of depreciation) 28 Bhown in Schedule A, Exhibit 1. This net profit for each of the nine periods was as follows: Percentage Period Ending Net Profit of Gross Income July 31, 1805 (13 months) +...$81,850.68 28.9 July 31, 1906 ... . 31,152.64 27.9 July 31, 1907 . 36,215.11 29.2 July 31, 1808 . . 41,236.5 30.3 July 31, 1909 . 33,990.7¢' 25.5 July 31, 1910 . 41,151.98 28.9 July 31, 1911 . . 46,870.06 295 July 31,1912 . . 55,563.40 33.0 April 30, 1913 (9. months) . 60,574.75 40.4 $378,605.85 30.8 From the above statement it will be seen that there has been a steady increase in the net profits of the Plant from the beginning, with the exception of the year ending July 31, 1909, the decrease in net profits of that year being caused by a reduction in rates. The excess of net profit for the 9 months ending April 30, 1913 over all charges for operating, expense, depreciation and a return of 5 percent. on the City’s investment, amounts to $27,277.02, as shown in Exhibit 4 of Schedule A. The rapid increase during the last three periods was caused. by a very substantial increase in the volume of electrical business. The total net profit for the nine periods ($378,605.85) is accounted for as follows: Expended for additions and improvements on 5 plant ../ ..$$265,651.83 Less: Additional improvement by city . «v. 75,000.00 e F Total improvements paid for from earnings ...... $190,651.83 Increase in inventory, etc., other that plant. 17,766.37 Balance charged to City Treasurer, April 30, 1913 170,187.65 $378,605.85 The balance charged to the City Treasurer at April 30, 1913 ($170,- 187.65) after reimbursing the City for $113,406.20 interest paid during the nine vears on its $227,000.00 Bonds issued to purchase the Plant and $75,000.00 Notes issued to pay for additional is accounted for in Schedule C, Exhibit 1, which shows a balance on hand at May 15, 1213 with the City Treasurer, after paying all charges, both against the Plant and against the City for interest, of $75,196.53. -y DEPRECIATIQN. » The Statues of the State of Connecticut (Chap. 122 Sec. 1987, Re- vision of 1902) provide that five percent. of thie cost of the Plant shall he set aside each year for depreciation. Through error this 5 percent. has been figured upon the cost of the City's equity in the Plant ($227,000.00) plus the cost of additions, instead of upon the {otal cost of the Plant ($627,000.00) plus the cost of additions. _ Thus the amounts charge for depreciation since July 1, 1904 ag- gregate $121,693.02 instead of $266,489.91 as they weuld have if prop- arly fieured, a difference of $144,796.89. In Exhibit 4 to Schedule A appended 18 shown in detail, for nine periods, the net profit necessary to make In order to earn 5 per- cent on the Citys.inves{ment and 5 percent. depreciation, as called tfor by the Statutes, and the net profit actually made. From this statement it will be seen that during the first six periods the net profits of the plant were not sufficient to cover the requirements of the Statutes, but that during the last ilwee periods the requirements have been fulfilled. Since it ‘appears that the value of the Plant has been quite well kept up by the replacements and repairs, which have been charged against the operating expenses of the Plant, the five percent. deprecia- tion charged may seem excessive, but inasmuch as the Statute clearly states that depreciation shall be figured at 5 percent. there would seem {o be nothing else to do. Still T think that it would be allowable from this time on to deduct from the depreciation charge of each year the cost of actual replacements made during the year. BOOK VALUE OF PLANT. The plant was purchased from the Norwich Gas and Electric Company at a compulsory sale, and the price paid was decided by the Courts. Inasmuch as the Court decided that the equity in the proper- ty, which carried a $400,000.00 mortgage, was worth $190,000.00, the total value of the Plant at that time must have been $590,000.00, to which must be added the cost of litigation and additional personal property purchased amounting to $37,000:00, which would make the value of the property $627,000.00 at the time City took possession, July 1, 1904. From this amount must be deducted the 5 percent. per annura charged for depreciation, ameunting, in the nine years, to $266,489.91, and to it must be added the cost of Additions and Im- provements during the same period, amounting to $265,651.83, which aakes the book value of the Plant at April 30, 1913, $626,161.92. BONDS OUTSTANDING AGAINST PLANT. As mentioned above, at the time the City took over the Plant there was outstanding against the Plant a mortgage of $400,000.00, which still remains as a liability of the Plant, althpugh the City did not guarantee the mortgage at the time of purchase. Neverthe- less the City will have to take up this mortgage at maturity or let the Plant go under foreclosure sale, which it naturally would not do as the Plant is worth much more than the amount of the mortgage. This mortgage has never been considered as a liability on the gen- eral books of the Plant, although the semi-annual interest amounting tol 32‘0,000.00 a year has regularly been paid from the earnings of the Plant. Therefore when the books for the Plant were first opened the liabilities were too small by the amount of this mortgage and the as- sets were too small by a like amount, since the book value of the Plant did not include this amont. GENERAL OBSERVATION. A reduction of 2 cents in the price of electricity would decrease the gross earnings of the Plant approximately $11,600.00, based on the earnings from Electric light sales from January 1, 1912 to December 31, 1912. A reduction in the gas rate of 10 cents would reduce the income approximately $4,000.00. 3 Considerable trouble was experienced in reconciling the balance charged against the City Treasurer on the books of the Plant with Net Profits Amount to $378,605.85--Profits for the balance shown on the Treasurer's books. I therefore recommend that the following Journal entries be made upon the books of the Plant in order to bring them into confoermity with the books of the City Treasurer: 5 City Treasurer to City’'s Investment (Cost of Equity) To charge City Treasurer with amount received from City to pay for additiens and improve- ments (1904-3). : i $112,000.00 $112,000.00 City’s Investment (Cost of Bquity) $37,000.60 to City Treasurer $37,000.00 To credit City Treasurer with amount repaid City to pay off notes 10). Profit and Loss : 84,187,092 to City Treasurer $4,197.32 To credit City Treasurer with items paid by Finance Dept. as follows: T.oss on sub-lease of 0ld OffiCe. ceerevrssons dsiesvows $1,286.17 Premiums on Surety Bonds ...ireesssnrecasmnssoss 28750 Damage Suit Settled ..ot ssssmecsosmsssossirsssness 2,00466 $4,197.32 —_— City Treasurer $6,807:92 to Profit and Less $6,307T92 To charge City Treasurer with interest received in Sinking and Reserve Funds. The amount of interest received on these Funds should be obtalned from the City Treasurer each year and charged to him on the books of the Plant. I also recommend that the following Journal entries be entemed upon the books of the Plant in order that they may-accurately set forth the true condition of affairs of the Plant: $400,000.00 Plant Account 3 To Bonds Qutstanding $406,000.00 To charge former.account with that part of the cest of the Plant not entered upon the books at the time City took over the Plant, Profit and Loss $144,795.3% To Plant Account $1: To credit the latter account with the proper amount of deprecia~- tion as required by the Statutes. I wish to express my appreciation of the uniform courtesy shown me by the employees of the City, at both the office of the Plant and of the City Treasurer. Respectfully submitted, (Signed) ARTHUR V. GRIMES, Certifled Public Aocountant. A SCHEDULE] “A” CONSOLIDATED PROFIT AND LOSS ACCOUNTS FOR THE PE- RIODS FROM JULY 1, 1904, to APRIL 30, 1913. Net profit from operation for the period, Exhibit T $378,605.85 Deduct depreciation at 5 per cent per annum on value of plant, Exhibit 4 .ceeivecrnone e st es-hwrman e vs e 266,489.91 Profit fr period—to balance sheet—Sthedule Bl msssmes e $ELT15:94 T T I e ———————————————————————————————————————————— e e e Profit and Loss Account From July 1, 1904 to April 30, 1913 Net carnings from gas opera- tion, Exhibit 2... .$21,770.60 $18,013.66 $17,846.61 Net earnings from eleotrical operations, Exhibit 3 ., 31,642.47 38,179.74 37,851.91 Profit on merchandise, store ropm, bad debts, etc....., 104.28 40.76 516.59 Neti - manufacturing profit.. .., 53,617,35 51,1564 56,215.11 ¢ Deduct intérest on bonds .. 21,666.67 20,000.00 20,000.00 * Net operating profit exclusive of depreciation ,,,.......,, 31,850.68 31,152.64 36,215.11 1908, thirteen months, *Nine months only. 1505. 1906. 1907. 1908. $18,534.90 42,443.82 6i1,236.53 20,000.00 41,286.53 SCHEDULE A, BXHIBIT 1. 1909. 1910. 1911, 1912, 1913.% Total.. $15,220.08 $18,073.24 $23,718.39 $23,924.36 = $18,318.74 $175,420.58 38,344.36 43,417.00 51,062.47 57,155.84 377,855.02 426.25 265.33 576.57 100.17 1.996.91 53,990.69 66,870.06 75,563.40 76,574.75 272.51 19,999.99 20,000.00 20,000.00 20,0.000 15,000.00 176,666.66 33,990.70 41,151.98 46,870.06 55,563.40 60,574.75 378.605.85 Gas and Electrical Plant of Norwich, Connecticut, Operating Account of Gas Plant July 1, 1904, to April 30, 1913 i 1905. 1908. 1907. 1908. $51,769.93 Gross earnings ............ $47,668.92 $48,339.82 $49,410.47 Deduct: Operating expenses, Vi Manufacturing 21,197.18 25,233.86 24,415.12 Distribution . 2,898.81 2,447.94 4,243.92 General expenses ... 1,902.53 2,644.36 2,904.82 Total operating expenses.. . 25,998.32 30,326.16 31,563.86 Net earnings from operation carried to Exhibit .... 21,770.60 18,013.66 17,546.61 913. *Nine months to April 30, 2,779.66 18,534.90 SCHEDULE A, EXHIBIT 2. 1909. 1910. 1911, 1912. 1913.* Total. $50,119.94 $49,183.67 $53,612.23 $55,017.93 $45,933.97 $451,076.38 25,164.58 20,684.28 21,141.95 21,435.33 19,482.87 203,999,5'1 6,124.15 5,892.42 4,297.23 5.042.73 4,694.56 40,852.53 3,611.13 4,533.73 4,454.66 4,615.51 3,457.80 80,804.20 24,899.86 31,110.43 29,893.84 31,098.57 27,636.23 275.656,30‘ 15,220.08 18,073.24 23,718.39 23,924.36 18,318.74 176,420,58 Gas d Electrical Plant of Norwlch, Connectlcut, Operatmg Account of Electrical Plant July 1, 1904 to En Aol SCHEDULE A, EXHIBIT 3. 1905. 1906. 1907. 1908. 1909. 1910. 1911, 1912, 1913.* Total.. Gross earnings .. $59,027.18 $63,364.78 $74,600.81 $84,383.60 $82,819.82 $89,421.07 $105,393.61 $113,167.92 $103,788.53 $775,967.32 Operating expenses, Viz. [ Manufagturing .. . . 21,493.34 8 9., 29,327.47 30,831.34 33,342.94 / 49,190.06 47,677.49 36,330.44 298,599.27 bution . ... . 439385 375118 4,911.01 865093 7,911.03 7.356.357 6,901.94 7.867.16 493085 56,674.30 | expenses . L49T.52 3907.00 3,958.56 5.133.09 5,966.37 583461 6,560.80 537140 42,838.73 Tolal operating expenses ..... 27,384.71 30,185.04 46,748.90 4193778 44,475.45 46.665.66 61,976.61 62,105.45 46,632.69 39811230 Net eargings from operat- 4 in c§l'ied to Exhibit 1..... 31,642.47 33,179.74 37,851.91 42,445.82 38,344.36 42,755.41 43,417.00 51,062.47 57,155.84 377,855.02 - Statement Showing Proper Charge For Depreciation and Necessary Return on City Investment in the Period From July 1, 1904 to April 30, 1913 » % E b1 2 IS S 2 555 E 2 5% £ dn Ses 3 g8S 3 B @ g - ) E k=t &5 w8 w @ & 25 > B 3 3 @ o . @ - ~ y&E & = = @9 nE 83 SR 8 $8¢e 2883 Se =9 o3 S @ o ¥y coa Ko k] ze 2¥R% a z&S <&0 2fa $353,378.18 $17,668.91 $627,000.00 331,350.00 $49,018.91 185 2 539,900.00 16,950.00 605,000.00 30,269.16 47,219.16 339500.00 16,950.00 633,568.75 45.627.91 339.000.00 16.950.00 628,811.28 48,390.56 41,236.53 1908 339,000.00 1695000 617.510.07 47,825.50 33.990.70 1910 339,000.00 16,950.00 599,518.65 46,925.93 1911 . 302.000.00 1510000 584.797.80 44,339.89 1912 . 302,000.00 1510000 593,764.73 44,788.23 ]9|3f . 302,000.00 11,325.00 592.606.34 33,297.73z $266,480,91 $410,433.82 $378,605.55 $31,827.97 Amount of depreciation charged.. $121,693.02 % Additional amount to be charged.. 5 $144.796.89 zFor the nine months from August 1, 1913 to April 30, 1913. *Deficiensy or loss. - * Section 1957 revised statute of 1902. 3 Cash at Office ..... : 75.00 BALANCE SHEET. Beok Value of Plant July %, el 30, 1913. . ASSETS, 1904, ..00000i0rer 0. .$627,000.00 Add: Additions to Plant July 1, '04.to April $0, 13 265.651.83 x $8532,6561.83 Deduct: Depreclation at 6 per cent, per annum on ant from July L 04, te April 30, '13,,,, 266,489.91 regetrree: rrrrses Book Vajue of Plant Agril 30, 1913,,.............. $626,161.93 Inyent S PP ceveees 12,262.87 _Accounts Reeeivable—Exhibit 2 ... 17,897.07 Boiler Ingurahee Ugj;p*' g B.0% Depositod with City Treasurer—Schedule C . evres 170,187.65 $826,592.59 LIABILITIES. Investment of City of Norwich—Schedule C ................$302,000.00 Bonds outstanding against Plant . 400,000.00 Interest Accrued on Bonds ... 6,666.66 Accounts Payable ....... atiararnee 5,064.09 Guarantes Deposits ... 727.50 Water Tax Accrued ., . seeessrirrne 18.40 Surplus or Profit, July 1, 1904, te April 1913, after dedusting Bond Inkerest and Deprociatipn—8chedulo A...... 112,115.94 Schedule B. Exhibit 1, INVENTORY, April 30, 1918, ‘Gas— : Store ROOTL . v. cemmmieam cmmmte. - $HRIITUD Gasg Coal StoCk wiwweesesosommmmisemmomonivmes 1, 70034 Coke . e 2 SRS R 16 Tar .. .- e e o e s e o e 189.26 Purification SuUDDPLES . ... ceesosmimcasnas o 260.73 Benches .. ...... ces seosromscmvmdrsctionnesna 1,7T4.50 Gas Stove MdSe. ..e.ewrsecomeommme s mmi. o .05 BeNZOL ...... sie +ovonerenren sanindicamilnamatesd 147,99 Gas Oil Sto0k ..esecevecercome semwrmcresancees 266.32 $7,269.75 Electrical— Store RO« comr msvmimmen cosn ot ammpion s $2,089.85 Fuel Coal @ e Sl wniaiv et etena t 364868 Lubricating Ofl icessiesras cxwientwaimmcs et sl 76564 00467 $12234.42 Deduct: Excess Credit on TEr Barrell. cumenasivts veersises 2o 3155 Schedule B. 4 - ! - d Exhibit 2, 5 [ ACCOUNTS RECEMNABLE. April 30, 1918, Gas— f General CONBUMAT ... .eesoveveommmeesrmeoresee §0,044:22 Prepayment ...... secesr sosevte mivodirssoedd 43,88 y City Public Bull@INgs «oee b mrmmimammmsionon s 4.10 $5,007:28 Electrical— Light 58183 seereerey verersor oo immicotvdet - $5062.67 POWEr SaleS ....vus i veoevems s qeone 3,587.01 City Public Buildings e ————— B5.34 4 Bireet: TAEDES' - st oo s iiriss st mesmppiintbinlisa - TOMSG “$10:60438 Sundry Sales Charged .........e o iisvesmess sovansamionodns 219630 17,8907 Schedule O: il | LBEh ACCOUNT WITH CITY TREASURER - - For the Period from July 1, 1904, to Aprit 30, 1913, DEBIT. Received from City to Purchase Plant. ... ... e $237,008.00 /" “ Received from City for Additions to Plant........ 112,000.00 Received from City for Running Expenses—Ist year 14,373.1¢ Total Received from City.<._..._.¢_....4..-..\._336§.m.u 4 Deduet: ? Repaid City, 1904 .cevormeanoeceses $14,378.18 g Repaid City, 1910 ....iveesneeswuewes 37,000.00 51,3789 $302.500.90 City's Investment, April 30, 1913, cvievonccas Add: Net Profit from Operation for Period, exciusive of Depre- clation Charges, Scheduls A .....cccvevermncsses.. 378,805.85 Total Debits ....c.ceivvrirrevsimetossosreoseoimonesas .. $680,806.85 CREDIT. it Paid on Plant, July 1, 1904 .....ovuesreceoansscnensssene...$227,000.00 Expended for Additions and Improvements on Commissioners” Orders ....coooeee oo» . . 265,651.83 Expended for Mdse. and Other Assets on Hand 3 17,766.37 Total Credits .......ceoccovecsnomasmoncecsosssosssross.$5610,418.20 Balance charged to City Treasurer Aprfl 36, 1913, Exh. 1.... 170,137.65 Scheduls €. Exhibit 1. CASH ACCOUNT OF CITY TREASURER. May 15, 1913, Charged City Treasurer per Schedule C......................3170,187.65 Add: Interest Received from Sinking and Reserve Funds.... 6,807.92 Receipts May 1 to 15, 1913....c0cccimorerrccreansaeeass 15,804.48 $680,605.85 $192,800.05 Deduct; Amounts expended for Gas and Blectrical Dept, not entared on the books, viz.: Loss on sub-leass of old Office. . $1,285.17 Premiums pald on Burety Bonds 297.50 Damage Buit Settled , 2,864.65 Interest paid on Bonds and Notes issued by City te pay for Plant and Additions...... 113,406.20 117,608.53 Rl i Net Balance as per City Treasurer's Beeks,.,, . $75,196.53