Knowledge that Transforms

Reviews the book "Taxing to Prevent Inflation," by Carl Shoup, Milton Friedman and Ruth P. Mack.

The article presents three problems, which were presented by the Board of Examiners of the American Institute of Accountants as the second half of the November, 1943 examination in accounting practice. Each problem was assigned weights as follows: problem 1, 14 points, problem 2, 20 points, problem 3, 16 points. The time allowed to solve all problems was four and a half hours. In problem 1, columnar work schedule was supposed to be prepared with the help of data given in the problem. In problem 2, with the help of certain data given in the problem, students were asked to prepare a columnar work schedule showing the June 30, 1943, balance sheet before and after the proposed reorganization, with explanatory adjustment columns for the necessary changes in several balance sheet items. Students were also asked to prepare a statement showing the effect of the proposed reorganization upon annual bond-interest and amortization charges and dividend requirements. In problem 3, students were asked to prepare a comprehensive columnar work-sheet showing adjustments to the bookkeeper's statement with the help to certain data given in the problem.

The usefulness to teachers of results of aptitude tests given to their students may easily prove greater than might at first be expected. If a school must limit its enrollment, objective measurements of learning capacity would be a helpful addition to the evidence afforded by previous classroom grades. There are several reasons for thinking that teachers of accounting and colleges of commerce generally should be glad to cooperate in this experiment wherever it is feasible to do so. If the accountant needs a certain type of ability, but little or no mathematical knowledge, it is an open question whether the study of mathematics is the best way to attain that ability. If some other approach will develop the desired ability and at the same time give the student certain knowledge that will also be directly useful in his future work, it is clearly an advantage to follow this course, even if to do so means foregoing the discipline which is part of the study of mathematics.

The article presents practical frameworks on which a businessman can build a program to meet his specific postwar problems. Many businessmen, in fact, are about ready to throw up their hands in despair and let nature take its course. Here then is another postwar plan, but it is one that most businessmen can adapt to their own problems. First of all, there are certain trends which affect the nation's whole future economy and all business, nevertheless, within those trends each business organization can to a great extent plot its own course. Business trends are not all inevitable, there is no certain destiny marked out for any person or group. One who has a head start in planning will have a tremendous advantage over one who improvises his actions hurriedly and without coordination when conditions force him to do so. Probably the greatest problem, the one that will affect all businesses to a greater or lesser degree, is whether businesses shall find themselves in a period of boom or depression immediately after the end of the war, or a year later, or two years later.

The controllership function is in a state of evolution and development, and that there is a truly amazing variety in the nature and scope of controller's duties and the importance of his job in different companies. In most business enterprises the organization of responsibilities tends to vary with capacities, and perhaps with interests, of individuals who make up the executive "team," and, furthermore, that the higher one goes in the scale of responsibilities, the more likely one is to find this kind of variation. This is an inevitable and a desirable condition, for it is usually easier to adapt organization to human capacities than to attempt to mold people to fit a rigid organization plan. This process of adaptation cannot be carried too far, as there are certain principles of organization which are basic and which must be observed in management is to function effectively, but the area of possible variation is rather broad. And so it is often found controllers performing duties which seem to be clearly extraneous to their function as it is generally understood, and in many cases it seems that these duties are assigned to them simply for lack of a better place in the organization to unload them.

The article presents problems presented by the Board of Examiners of the American Institute of Accountants as the first half of the November, 1943 examination in accounting practice. From the data given, students were required to prepare a consolidation of balance-sheets of the Top Holding Company and its subsidiaries. The investments in R Co. stock are carried at cost less subsequent net losses, investments in S Co. stock at cost. Bonds were acquired at $1,500 discount and are held for cancellation. Students were required to prepare statements of principal and income for the executor, covering the period from January 15 to January 31, 1943. In another problem businessman Alex Dunn, Jr., died on January 15, 1943, his records disclose certain estate. On July 1, 1925, the late Alex Dunn, Sr., created a trust fund, with his son, Alex Dunn, Jr., as life tenant, and his grandson as remainderman. The assets in the fund consist solely of the outstanding capital stock of Dunn Inc., namely, 2,000 shares of $100 each. Students were required to prepare the cash settlement between partners, taxable profit or deductible loss of partners and tax basis to purchasers of assets bought December 31, 1942.

Anyone who contemplates employing others in business must look ahead and estimate the probability that in the long run he can recover from sales income all he will spend for salaries and wages, materials and supplies, and other charges and expenses of the business, that he can keep his capital intact or be able to compensate for losses, and have a net profit remaining, after taxes, sufficient to warrant the capital employed, risks involved, and abilities and efforts expended. Unless he can see a reasonable prospect of doing these things, there is no inducement for him to give employment. He certainly cannot ask others to contribute finances unless there is a prospect for reasonable returns on the capital employed. If he uses his own money on any other basis, he will probably not long be in a position to give employment. The net yield is to be measured by what remains to the investor after taxes. Whether the investment is in a corporation or a partnership or an individually-owned enterprise, the net result is the figure after all tax payments, corporation or individual.

Reviews the book "Drug Store Accounting," by J. Brooks Heckert and William E. Dickerson.

The article presents information about a Committee appointed by the American Accounting Association. The work of the Committee on Monographs during the year, 1943, has been devoted primarily to two projects. The first consisted of preparing a compilation of the releases and pronouncements on accounting matters issued by the Securities and Exchange Commission, the Committee on Accounting Procedure and the Committee on Auditing Procedure of the American Institute of Accountants. The second project was the preparation of a monograph on the principles of consolidated statements. This monograph was written by Dr. Maurice Moonitz of Stanford University, and was reviewed and approved for publication by the Committee. The Committee has also given some attention to two or three other projects and manuscripts. The president of the Committee said that the educational institutions and programs are all being subjected to special stresses and difficult restrictions during the war. The programs of most colleges and universities in fields customarily followed by men have had to be materially curtailed or completely eliminated.

An analysis of the accounting curricula of thirty-eight member schools in the American Association of Collegiate Schools of Business shows no unanimity as to method of offering accounting courses or course requirements. A few generalizations can be drawn, however. Half of the schools offer elementary accounting in the sophomore year and a very substantial minority offer that course in the freshman year. There is a tendency on the part of the former group to require fewer accounting courses and fewer credit hours in accounting than are required by the schools which begin accounting instruction in the freshman year. This tendency shows itself in the accounting courses required of all commerce students and also in the requirements to be satisfied for an accounting major. Schools which begin accounting instruction in the sophomore year tend to require fewer hours to accounting for the major than do those which offer accounting in the freshman year. Member schools which replied to the questionnaires constituted 73 per cent of the total membership of the association.