Write-Downs

Finding its surplus wiped out by a drop in assets, many a corporation has created additional surplus by writing down the stated value of the common stock. Both these items are carried on the liability side of the balance sheet. Most companies that have done this are holding companies or investment trusts. Other companies have used some surplus to write down such assets as plants. By doing this they express plants at their true value and do not have ti deduct such large depreciation charges from earnings in subsequent years.

Last week President Albert Russel Erskine of Studebaker Corp. wrote stock-holders regarding a proposed $34,000,000 increase in surplus by writing down common stock, to be followed by a write-down of assets. His letter explained the idea behind the changes, likely to become commonplace in U. S. companies unless there is a business revival:

"From the standpoint of existing competitive conditions in the industry, which is largely overbuilt in plant facilities with a capacity of 9,000.000 cars and a present output of 2,000,000, our future prosperity and profits of our stockholders' interests would be best served by reducing the book value of our plant facilities and effecting savings in depreciation. . . . The capacity of our plants remains the same regardless of book valuation, but their efficiency expressed in manufacturing costs is directly measured by book valuation.''

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