Knowledge that Transforms

The article discusses various issues related to the establishment of a federal tax bar in the U.S. Viewed from the narrow and introspective standpoint of the professions involved, there appear to he several avenues of utility. There is need for the better apprising taxpayers and the professions of the difference between the general practitioner and the tax practitioner. The field is also fertile for a more wholesome understanding all the way around of the separate boundaries and roles of the attorney and the accountant respectively. These functions may well be the province and product of an organization such as contemplated here. The organization may also take under its wing observations and recommendations on the rules of the game and having reached agreement from within, it could then present a coordinated viewpoint in the formulation or maintenance of correlative rules by external agencies, including the governmental departments and professional societies. Another possibility is the development of a central library for tax briefs akin to the libraries maintained in the general field by the larger bar associations, thereby affording practitioners the same advantage now enjoyed by the government staff in preliminary research for briefing on a particular tax subject.

The article focuses on opinions expressed by the justices of the Supreme Court of the United States on depreciation that had a marked influence upon the subsequent decisions of the state and the Federal public utility commissions. In no case prior to the Knoxville Water Company case in 1909 has there been more than an incidental reference to depreciation, or a brief discussion which indicates an entirely inadequate knowledge of its nature and problems. Definite recognition was given of the necessity of a utility keeping its property in good service condition, but little or no appreciation was evidenced of the function of depreciation accounting methods. A statement was made in the case of United States v. Kansas Pacific Railway that only such expenditures are actually made, can with any propriety be claimed as a deduction from earnings, and the creation of an unspent reserve through periodic charges to operations was prohibited.

The article focuses on the Certified Public Accountants (CPA) commercial law examinations. To find a place in their field and to achieve any degree of success therein, accountants find it necessary to become a CPA. The usual qualifications for candidacy for the CPA examination are that the examinee be 21 years of age, have had a high school education or the equivalent thereof, and a certain number of years of practical experience in accounting. The subjects in which the CPA candidate is examined are: theory of accounting, practical accounting, auditing and commercial law. The law examination, thus, forms 25% of the total examination. About ten other states use the examinations prepared by the American Society of Certified Public Accountants. The law divisions of these examinations contains about thirty-six questions, from which the states using them choose the number and kind they desire. Thus, these examinations play a vital role in the international accounting arena in the corporate world.

The National Housing Act provides for the insurance of mortgages. Section 205 of the act states that all mortgages accepted for insurance shall be so classified into groups and that the mortgages in any group shall involve substantially similar risk characteristics and have similar maturity dates. Premium charges received for the insurance of the mortgage and earnings from all properties taken over by the administrator shall be credited to the group account. However, there are several accounting problems raised by the act. There is room for considerable variation in the interpretation of the law that will have a bearing upon the accounting procedure to be established. There is little question that the accountant is required to classify the mortgages into groups of similar risk characteristics and similar maturity dates. When the groups have been established, they may be liquidated in two ways. First, when the balance in the group account exceeds the outstanding balance of the mortgages in the group by ten per cent of the total premiums paid and, second, when the balance in the account fails to reach the above figure one year before maturity of the mortgages, ten per cent of the premiums paid shall be transferred to the general reinsurance account and the balance, if any, transferred to the mortgages for the benefit of the mortgagors.

Following the publication of a statement of objectives of the American Accounting Association in the March 1936 issue of The Accounting Review, the Executive Committee, governing body of the Association, has authorized the publication of the appended tentative statement of accounting principle, relating primarily to corporate reports. The article presents some of the bases upon which accounting statements rest in the U.S. It includes an experimental formulation of principles having application to perhaps the most significant part of the accountant's field of endeavor. The article says that the most important applications of accounting principles lie in the field of corporate accounting, particularly in the preparation of published reports of profits and financial position. On the interpretation of such reports depend so many vital decisions of business and government that they have come to be of great economic and social significance. Every corporate report should be based on accounting principles that are sufficiently uniform and well understood to justify the forming of opinions as to the condition and progress of the business enterprise behind it.

Reviews the book "The National Recovery Administration. An Analysis and an Appraisal," by Leverett S. Lyon, Paul T. Homan, George Terborough, Lewis L. Lorwin, Charles L. Dearing and Leon C. Marshall.

Reviews the book "Financial Reports for Colleges and Universities."

The article deliberates on whether the stock dividends should be considered as income in hands of the recipient. Numerous views are being given on the subject. However, the views expressed are conflicting because different aspects of the problem are being emphasized by different persons. Under the series of Federal income tax laws since the sixteenth amendment was passed in 1913, dividends have been subject to tax in the hands of the recipient. The act contained no mention of stock dividends, but the Bureau of Internal Revenue interpreted the law to include stock dividends as income and hence subject to tax. This interpretation was questioned by a taxpayer, H.R. Towne, who carried the case to the United States Supreme Court. The court decided in favor of the taxpayer, declaring that stock dividends were not taxable as income under the act. The court ruled that a stock dividend really takes nothing from the property of the corporation, and adds nothing to the interest of the shareholders. Its property is not diminished and their interests are not increased. The proportional interest of each shareholder remains the same.

The article asserts that the general law governing the value of capital goods has been known for some time. It may be stated briefly by saying that any capital good may be bought or sold for the present value of all future services expected from it. This rule is continuously being applied in practice by bond-traders and all bond tables are based upon it. Nevertheless, apparently no one has made systematic use of it to explain the formation of common stock values. Discussions upon the subject are frequent, but they seldom clear the hurdle of terminological difficulties. To review this preliminary difficulty, the article discusses the behavior of fair market value and yield of common stock. It highlights that when the earning rate equals the money rate, the expansion rate and the horizon lose their significance. The fair market value of the investment will equal the book value and the yield will equal the money rate. Moreover, when the money rate is very low, the fair market value of investments is very high, and their yields correspond closely to their expansion rates.

Reviews the book "The Monetary Problem: Gold and Silver," edited by Ralph Robey.