Historical cost, Valuation

Presents a reply to criticisms on an article about the need for priori research in accounting. Analogy between a move from a pure priorism to empiricism; Evidence that accounting literature is replete with evaluations of the alternative systems.

The notion of a revolution in accounting is taken from Thomas S. Kuhn's "The Structure of Scientific Revolutions. His thesis is that science does not progress through accumulation. Rather, a series of tradition shattering revolutions occur in which one time-honored scientific theory is rejected in favor of another incompatible with it. The new theory, or set of ideas, is unique in that it is not derived from the previously accepted dogma. It is seldom or never just an increment to what is already known and in the process of moving from the old set of ideas to the new, the community of scientists Follows a number of identifiable steps namely, recognition of anomalies, a period of insecurity, development of alternative sets of ideas, identification of schools of thought, domination of the new practices or ideas. The first step is a precursor to the whole process, it initiates the period of crisis which follows. During that period, scientists become increasingly dissatisfied with the existing theoretical framework and a search for alternatives begins. Therefore, the second and third steps are mutually interactive. As dissatisfaction grows, the search for alternatives gains impetus, as alternatives are discerned and discussed, the dissatisfaction is heightened. Schools of thought emerge and one set of ideas gradually gains ascendency over alternatives.

Concepts of depreciation which are relevant to accounting range from the methodical distribution of original cost, to attempts to measure and report changes in the service potential of the asset, using a discounting procedure. Allocation methods accept the distribution concept of depreciation whether this is related to original cost or some other figure, and attempt to answer the more pragmatic problem of how much is to be allocated to different periods. There is a prevailing confusion related to the definition of depreciation. One of the main causes of this confusion appears to lie in the usage of the word depredation which by its nature and common usage carries with it implications of physical deterioration, impaired efficiency, obsolescence and so on. It is suggested that, in view of the obvious confusion caused by this conflict in terminology, accountants would be well advised to restrict themselves to using the term amortization. The point that should be considered is whether the concept of amortization which is proposed is compatible with the accounting model with which it is to be associated.

Reviews the book "The Capital Expenditure Decision," G. David Quirin.

The article discusses the distinction between the conventional and some of the suggested methods of reporting fixed assets as they affect business income. This is done by presenting an article by professors R.L. Dickens and J.O. Blackburn published in the April 1964 issue of the journal The Accounting Review. These published accounts aid stockholders and other outsiders to project the future earnings and financial condition of the corporation and to assist with the evaluation of the performance of management. According to the author, as the individual requirements of different users of published accounts are unlikely to be cognate, one set of accounts will scarcely fulfill the needs of all stockholders and other outsiders, no matter how "objectively" the asset values contained therein are determined. He suggests that replacement cost, "realizable value," "historic cost," and "historic cost adjusted for price level changes," can provide a basis upon which stockholders and other interested external parties can project the earnings and financial condition of the enterprise according to their own requirements.