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veil as the eaet Iron piping laid by the LVLandWGo., to which the rate was applicable. The wood pipe laid in 1924 and the purchased lines having been replaced with cast iron in the last two or three years, it follows that depreciation accruals have not been adequate to account for all the property retired. The annual depreciation rate was changed to 1 1/4#, effective January 1, 1941. This appears adequate for the present cast iron pipe, allowing for it a service life of 30 years. It also is adequate to build up a reserve against which nay be charged the cost of future replaceaents. The depreciation reserve in the past has not been charged with the cost of property retired in connection with replacements. Such changes were accounted for on a betterment basis, l.e., the estimated current cost to replace the property retired was charged direct to oper­ating expenses and only the excess cost of the east iron pipe laid in its place over the cost at current prices of the discarded wood pipe was capitalised. Obviously such accounting has been advantageous from an income tax viewpoint. The composition of the amount paid annually as rent for the Joint use of IM k S L springs, wells, pipe lines, etc., Is indicated by the following example applicable to the calendar year 1939: Valuation of property January 1, 1933 #193,336.27 Changes during the year Total at January 1, 1939 19i.336.fe7 Water used in 1933: For railroad purposes For LVLandWCo. Interest on #193,336.27 at 6# Depreciation " at 4# Insurance Taxes * at 1.75# Maintenance and operation cost 103,060,353 gallons 776.032.840 #11,600.18 7,733.45 25.00 3,333.33 628.34 -gs.m.ss 12. 22# 87.78# 100.06# LVLandWCo. 87.78# # 20,514.48