So who, indeed, *was* the man standing behind Diane?

Allow me to introduce myself," said the man. "My name is Ivar Kreuger. They call me the Swedish Match King."

The Fool, half expecting a polka band (or the Swedish equivalent) to strike up a tune, and for the man to jump out of line and hoof his way across the Pedestal of Liberty, chuckled.

"Quel coincidence," said the Fool, in deference to the fact that the statue had been a gift from France. "Clearly I'm no match for you."

"And what," asked Diane Mills, suddenly interested in the conversation, "has brought you to America?"

"I've been buying up match factories all over the world. I buy them up, then I shut them down, and build new ones, newer and better, which can withstand the competition. I grant loans to entire countries. In return, I obtain a virtual monopoly in selling matches. Right now I have over 200 match factories in 17 non-European countries alone."

The line began to move forward, and the tourists, eager to get out of the hot sunshine and into the cool stairway inside the Statue of Liberty, chattered excitedly.

"I'm here in New York to check on our latest factory. You can see the building from the top of Lady Liberty. It is state-of-the-art, as is the equipment inside."

Diane Mills, though she knew almost nothing of long-lived assets, or depreciation, or balance sheets, felt impelled, like a cannonball shot out of a cannon, to make an impact.

"Over what time period do you plan to depreciate your new equipment?" she asked, barely knowing what 'depreciate' meant.

"Over thirty years, of course."

They began to huff and puff with the strain of climbing the stairs. As they passed a window on the way up, a ray of light shone in, and they paused.

"There -- look out there, across the water," said Ivar Kreuger. See the factory? You can even see the equipment through the open window." And sure enough, the sun shone off the glinting steel machinery in such a way as to make it glow like Valhalla.

The Fool said, "Well, Mr. Match King, this may rub you the wrong way, or strike you funny, but your 30-year plan might go up in flames."

The Swedish Match King smiled.

"You? A Fool? Propose to tell me how to run my business?"

Why might the Match King be well advised to listen to the Fool's counsel?

1) Depreciation expenses are supposed to reflect an asset's useful economic life

2) Long-lived assets cannot be depreciated

3) The faster you depreciate a building, the greater your income

4) Technologically dependent industries like matchmaking cannot depreciate their assets

The answer is 1) Depreciation expenses are supposed to reflect an asset's useful economic life.

Another set of accounts on the balance sheet (this week's topic) is long-term assets. A long-term asset is an asset that is consumed or used over a number of accounting cycles, from more than one year to 40 years. The long-term asset accounts include assets such as land, buildings, equipment, and intangibles like goodwill and accrued organizational expenses.

If the matchmaker depreciates his equipment over thirty years and new match-making equipment comes along that renders the old match-making equipment less economically useful, then the company had better change its view of the useful life of the old equipment.

A depreciation schedule is constructed to represent the consumption of a piece of equipment of a long-lived -- a long-term -- asset over its useful life. If the depreciation schedule is constructed so that the expense is too low and does not represent the diminishment of the useful life of the asset in the face of the invention of more productive machinery, the business is fooling itself. It is overstating its earnings in such an instance, and if it is not prudent, it may not be setting aside enough to re-invest in newer machinery fast enough.

Could this kind of miscalculation which have led to the collapse of the Swedish Match King's empire of the course of the next eight years? Surely the Great Crash of 1929 didn't help. But even from their high vantage point, halfway up the Statue's stairs, they could not see the future.

Nor could they see who was waiting for them in the shadow of Liberty's Torch, like a black shadow on all that was right, and alight, in Democracy.

Tomorrow: The Roaring 20s, Episode 8
The Crown

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