Gold Mine or Fool’s Gold?
The stated premise of “Main Street Gold Mine” (Michael Majoros et al., October 2010)—that “funds collected for cost-of-removal liabilities could finance capital spending”—is not valid.
“Main Street Gold Mine” views the accumulated provision for depreciation (book depreciation reserve) as being cash that is readily available for financing capital expenditures. This is not so. A book reserve represents the accumulation of recorded depreciation expenses, retirements, salvage proceeds, and removal expenditures, of which only the salvage proceeds and removal expenditures represent cash transactions. The depreciation expense portion is comprised of non-cash transactions that allocate over the life of the related assets that are consumed in the process of providing goods or services 1) known capital expenditures after they have been made, 2) estimated salvage proceeds prior to being received, and 3) estimated expenditures for removal or abandonment prior to being spent. Retirements are also non-cash transactions that are the original cost amounts recorded when the capital expenditures were originally made.