Document Type


Publication Date

Fall 1978


WVU College of Law


The railroad industry, unlike almost every other industry, has a depreciation accounting system all its own known as betterment accounting. In sharp contrast to generally-accepted methods of depreciation, such as ratable depreciation, where the cost of the capital asset is systematically expensed over the useful life of the asset, under the betterment practice, the initial cost of track structures is recorded as a nondepreciable asset. Subsequent replacement costs are then charged directly to operating expense as an "adequately reliable" measure of depreciation. Justifications for this unique system of accounting relate primarily to the peculiar nature of railroad track structure-a large number of individual components that can be replaced on a scheduled basis. The American Institute of Certified Public Accountants, noting the historical acceptance of betterment accounting, continues to allow the betterment method in railroad financial reports to shareholders. The Interstate Commerce Commission (ICC) as grappled constantly with the issue since the agency was formed in 1887, but still finds the betterment method acceptable and even requires it in railroad reports submitted to the Commission. The Securities and Exchange Commission (SEC) has a chance to make a fresh, critical examination of the appropriateness of betterment accounting for shareholder reporting purposes. The Railroad Revitalization and Regulatory Reform Act of 1976 [4R Act] gives the SEC expanded authority to issue disclosure requirements for railroads in filings with the SEC and reports to investors. Pursuant to this grant of authority, the SEC in April of 1977 announced a proposed rulemaking to examine the standards for disclosure of railroad industry operations. The SEC requested public comment as to whether betterment accounting should continue to be an acceptable accounting principle for railroads for reporting their financial position and results of operations to shareholders and the SEC. The betterment method and the alternative ratable depreciation approach must be compared in light of the SEC's role in ensuring proper disclosure of financial information to the public: which method yields a more accurate picture of a railroad's operating results and over-all financial health? This article will closely examine these two accounting methods by reviewing the public comment received by the SEC under its rulemaking procedure. First the betterment method currently practiced by railroads will be discussed, followed by an analysis of the more widely-accepted ratable depreciation approach.

Original Publication Title

Journal of Corporation Law

Source Citation

James M. Nostrnad, Betterment Accounting: A Requiem by the SEC, 4 J. Corp. L. 213 (1978).


This article is included in the Research Repository @ WVU with the permission of the Journal of Corporation Law.



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