Asset valuation, Linear Programming, Opportunity value

Opportunity Costs, Linear Programming, Discounted revenue valuation

Depreciation, Cost allocation, Asset valuation

Accounts receivables

Depreciation, Cost accounting, Current value

Depreciation, Present Value

Reviews the book "Australian Financial Reporting: An Examination of Financial Information in the Annual Reports of 120 Australian Public Companies," by Peter E.M. Standish.

Inventory should be valued either at net realizable value or at replacement cost, and that the choice between these two measures should depend upon the nature of the constraint which limits the level of activity of the firm holding the inventory. In the usual case, where sales are limited by demand rather than supply and where selling price exceeds replacement cost, the value of inventory to the firm owning it is equal to its replacement cost. Where the level is controlled by supply rather than demand e.g., where production capacity is the limiting factor, it is net realizable value which represents the value of inventory to the firm and which should, therefore, be used as the accounting measure. Net realizable value is also the appropriate accounting measure when it lies below replacement cost. The value of inventory to the firm will now be investigated more rigorously with the aid of the duality theory of linear programming. For completeness, we shall consider, in an appendix, certain knife-edge cases not previously discussed, such as the case where net realizable value exactly equals replacement cost, or demand exactly equals supply.

This article presents the author's rejoinder as J. W. Bennett accuses him of having made several important errors in his article on corporate profits. In fact, he has convicted him of one error only: It was the mistake of double counting retained earnings and his discussion of earnings yield therefore needs to be modified. A substantial part of Mr. Bennett's attack consists of an arithmetical demonstration of the fact that the present-value ranking of two projects may vary with the rate at which their cash flows are discounted. This fact is not in dispute. The point at issue is whether the rate at which stockholders discount future yields is more relevant to the assessment of project profitability than the earning rate of the marginal project. Mr. Bennett thinks that the stockholders' discount rate is always more relevant, whereas he considers it irrelevant when it lies below the earning rate of the marginal project. In this situation, corporation management would set itself a growth target which is consistent with an acceptable cut-off rate; and that, within the limits imposed by this constraint, it would wish to select the more profitable of the opportunities available to it.