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[quote user="schlimm"] [quote user="Sam1"]I don't understand Frailey's comment regarding depreciation schedules in Japan. What do they have to do with the United States? If the NEC were depreciated over 30 years, its operating loss would be significantly higher than it is now.  [/quote] I don't have the Frailey column here, but I believe he referred to amortization schedule of 30 years, i.e. a bond note schedule to pay for the infrastructure, not a depreciation schedule.   sam1: "I read Frailey's column.  He is a journalist. He does not appear to have access to Amtrak's property accounting records or those of the commuter railroads. He says that the commuter and freight roads will be required to pay their share for use of the NEC by 2015, in accordance with a 2008 law, without providing any details. What percentage are the paying now?  And is Amtrak paying its proper share when it runs over the 94 miles of the NEC that it does not own? Again, without access to the property accounting records of the carriers, we don't know.  And neither does Frailey.  This is a example of relying on a secondary data source.  And why it is important to take the views of journalists with a grain of salt." Why the need to knock on Frailey?  Because you don't like what he said, so you challenge his veracity? He may be a journalist, but given that he has been writing about the rail industry for years, his credentials would seem to at least match yours as a utilities accountant. [/quote] In a column entitled Passengers for a Profit: Can it be Done, which is the context, Fraily said amongst other things that the Europeans and Japanese governments amortize the capital contribution [for their rail projects] over 30 years. Presumably the capital contribution was used or is used for infrastructure.  Amtrak's capital contribution is embedded in its Property, Plant, and Equipment.  Most of it is in right-of-ways and other properties.  When a company buys or builds PP&E, unless it is cash rich, which is certainly not the case for Amtrak, it has to fund the acquisition. It usually does so with long term debt. In Amtrak's case, however, most of it capital funds are from government grants. The initial accounting transaction is a debit to cash and credit to long term debt. However, in the case of a grant, it would be a debit to cash and a credit to accounts payable, followed by a credit to cash and a debit to PP&E.  Debits increase asset accounts whilst credits decrease them and vice versa for liability accounts. Debt is a Balance Sheet Account. It does not flow through the Income Statement and, therefore, has no impact on net income (profits) or net loss. It is the depreciation associated with the capitalized value of the asset that flows through the income statement. Depending on the debenture governing the debt, the issuer may be required to set-up a sinking fund to pay the debt when it matures, but this is not an income statement account. The interest associated with the debt flows through the income statement annually. Over what period of time this occurs depends on the debt maturity schedules. In the case of most capital intensive businesses, like a railroad, the debt is rolled over numerous times, so getting a fix on the maturity date of the debt for a particular project would be challenging. The debt interest (rate, amount, period) impacts the income statement.  The United States government, which is the principal supplier of funds to Amtrak, as well as the other U.S. transport operations that require a transfer from the general fund, issues debt over a variety of maturities.  The most common issue of U.S. Treasury debt is the 10 year Note, but it also issues 30 year long bonds, and there is some talk, I believe, of issuing 40 year bonds. Short term debt usually costs more than long term debt, but the total interest charges for a 30 year bond vs. a 10 year Note are substantially higher. Frailey is not a CPA. He does not appear to have a solid grasp of finance, as demonstrated by the statement regarding the amortization of capital. The fact that he is a long time rail journalist has nothing to do with his understanding of accounting and finance.     My message regarding passenger rail is straight forward. Tell it like it is. I am not knocking Frailey; I am questioning his facts. He overlooked three key points in his reference to European and Japanese amortization of capital. <ul> <li>He left out any mention of the financing cost of the capital. </li> <li>He overlooked the fact that the Japanese and French, after spending large amounts of money to built their HSR systems, probably wrote down the investment before handing it off to the current operators, thereby positioning them to be able to show an overall profit. </li> <li>He failed to note that the amortization period of federal funding in the United States for long term capital projects is 30 years, although the Feds would fund part of it with long bonds and part of it with 10 year Notes.</li> </ul> Amtrak could show a profit if it could spin off the cost of its infrastructure. Based on my readings of several years ago, this appears to be what the Japanese and French companies did. If Amtrak and the feds pulled it off deftly, they could show a gain on the disposal of the assets and tell the taxpayers that they realized a profit. Accountants know how this works; those without a background in accounting and finance as a rule don't. To think that an accountant only knows how to read the financial statements of one industry demonstrates a lack of knowledge of the accounting profession, accounting, and business. Depreciation is common across all businesses in the United States. It is scheduled in accordance with accounting standards that apply to everyone.
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