A subsidiary departmental report, Horwarded by the Treasurer and Controller, set forth in detail the citcumstances attending the reconstruc jon of the Shanghai Mutual Telephone Company and the developments jearried out by the Shanghai Telephone [Company since 1930. The new Company was financed by the parent body, the International Telephone and Telegraph Corporation, which was Jcredited with the cost of equipment supplied by it and its subsidiaries Jand with loans advanced for working feapital or otherwise, The report ex= lained how the cost of development, estimated by Mr. Anson in November, 1929, was greatly exceeded owing, to the fall in the tael in relation to the gold dollar, and how at considerable expense the American capital was converted by the issue, in 1982 Jand 1993, of 6 per cent. debentures to the amount of Tls. 5,000,000 and '$10,000,000, and by loans for Tls. 6,000,000 arranged by the Council. iwas stated that the 1. T. & T. Corporation, in addition to any profits [derived from the sale of equipment to the Telephone Company, had received the following considerations: (purchasing commission of 5 per cent. on equipment purchased abroad, (2) management fee of 4% per cent. Jon gross revenue, and (3) 6 per cent. interest on the current account with the Telephone Company.
Assessment of Capital the course of further discussion the Secretary stated that there was no. provision in the Franchise Agreement for the deduction of income tax in computing profits; it did not appear consistent with the agreement nor {2d it appear to have been contem-lated by the parties.
In regard to the assessment of Jcapital invested, the Treasurer and IControtier pointed out that the Jamount of $35,000,000 was reduced to that figure by the financing arrange: iment of 1933. The reduction in the Company's capital was most important because it meant that the rubseribers now had. to contribute less by 10 per cent. of the amount which the capital was reduced, while the basic figure on which depreciation iwas charged was also less. The total benefit of the conversion to the subscribers was approximately $500,000 per annum. As regarded technical factors, the Treasurer and Controller' ventured to. state hat tone could accurately as ess the effect on calling or service following the introduction of a message rate system. This could only be [proved by experience during the next fr two years. A 12% per cent. increase in revenue might leave the Company little short of the desired return on Invested capital of 10 per cent, but. jas 2 per cent. was intended for General Reserve the difference could be adjusted by means of the Tariff Revision Suspense Account and for the time being was unimportant.
Text read from the printed page and cleaned; old type leaves the occasional error.