Knowledge that Transforms

Abstract The article focuses on the statement of accounting principles by the American Accounting Association, published in the June 1936 issue of the journal The Accounting Review. The article presents comments in support of the suggested principles. In developing certain principles that would be sound in theory and practical in application, adoption of the best of current practice is involved, but with modifications designed to remove some of the uncertainties and inconsistencies from corporation income statements. Particularly it is sought to eliminate present confusion about the unusual cost or revenue items which sometimes are treated as capital losses or gains, sometimes as adjustments of earned surplus for prior years, and sometimes as current profit and loss charges. It is suggested that all the amortized costs and all the realized gains should be recognized in the income statement of some year, either as special items in the statements for the current year, or through correction and rewriting of the statement for prior years.

Abstract This article focuses on bases of valuation in German corporate balance sheets. Acquisition or production cost is prescribed as the maximum value for all fixed assets. The language of the present German Commercial Code is unequivocal on this point. By "acquisition cost" is meant the amount of actual expenditures on the fixed asset up to the moment when it becomes ready for use in operations. Besides the net purchase price this form of cost includes all direct overhead expenses, for instance, transportation costs, insurance premiums, import duties, commissions, cartage expenses, and installation costs. The bookkeeping technique of recording depreciation, in view of the great variety of practices, is not regulated by law, and must, therefore, be determined individually according to the principles of good accounting. The principle of minimum value applies to all current assets. The previous enumeration, as current assets, of securities and other assets which are not permanently required for the business conduct of the company, as well as of merchandise and the company's own shares, is now replaced by reference to the corresponding section of the classification ordinance.

Reviews the book "Insurance and Banking, Examinations and Accounting," by Herbert L. Davis.

Reviews the book "Managing for Profit," by C.E. Knoeppel and Edgar G. Seybold.

Abstract In government accounting, the two major classes of problems — classification and valuation — are not of the same relative importance as they are in the accounting for private industry. Emphasis swings heavily toward the former group. Reasons are readily perceived. In ascertaining the financial condition of a government, little significance is attributed to the value of its fixed assets, for rarely are they used to secure debt. Future taxing possibilities take their place as security. Furthermore, the operating statements are not concerned with reductions in value of fixed assets, through depreciation or otherwise, except for costing purposes. On the other hand, many restrictions placed on expenditures cause their classification to become more difficult. Hence, while valuation recedes into a minor role, classification moves forward into a peculiarly dominating position. This importance attached to classification is reflected upon the chart of income and expense accounts, the accounting framework used as a guide in classifying.

Reviews the book "La Profession d'Expert-Compatable aux Etats-Unis," by A. Perren.

Reviews two books on finance. "British Corporation Finance, 1775-1850," by G.H. Evans; "The Development of the Business Corporation in England," by Carleton Hunt.

Abstract This article presents an analysis of the tentative statement of accounting principles. Most objects are subject to different evaluations. Thus one man may view war as a glorious opportunity for the expression of the noblest sentiments of man. Another may regard war as a creation of the devil wherein mankind reverts to barbarism. But for both men the historical facts regarding war, when they are all discovered and presented, are the same. Differences appear in evaluation, so too with accounting. In formulating fundamental postulates to govern accounting procedure, therefore, one must be guided by the purposes which the accounting procedure is designed to serve. In the past the viewpoint and evaluation of the owner have been accepted as dictating basic principles. Accounting has been conceived almost entirely in terms of historical cost and historical transactions. In the usual case assets purchased may be justly conceived as costs applicable to the revenue which they are to assist in earning during the remainder of theft lives. The accountant frequently encounters difficulty, however, in allocating that cost to the respective and more or less arbitrary fiscal periods which the life of any given physical asset encompasses.

Reviews the book "Encyclopedia of Banking and Finance," 4th ed., by Glenn G. Munn.

Abstract A trust of corporate shares is often created under a will or other instrument in which it is directed that income of the trust is to go to a life tenant and that after this person's death the principal is to go to a remainder-man. If the trust instrument neglects to specify what is meant by income that is to go to the life tenant, doubtful items must be settled by the trustee. Among such doubtful items few have caused trustees more difficulty than stock dividends and the problem of allocating them between income and principal. The problem has driven trustees generally to seek the guidance of courts of law. As a result, the volume of litigation on the subject has steadily mounted. Because divergent judicial rulings exist between several states and varying applications of a given rule are made in the same state, trustees have readily submitted the problem for solution by courts at the expense of the trust fund rather than to decide the matter themselves and then become personally liable to suit by some dissatisfied party to the trust.