Knowledge that Transforms

Abstract Reviews the book 'Introductory Accounting--A Managerial Emphasis,' by E. Bryan Smyth and Walter L. Burke.

Abstract Reviews the book "Basic Accounting for Managerial and Financial Control," Second Edition by Albert Slavin, Isaac N. Reynolds and John T. Miller.

Abstract Presents a reply to comments made by authors on a study about the usage and relationship between opportunity and incremental costs in accounting and economics. Definition of incremental cost.

Abstract The article reports that on a time-state preference simulation model, it has been shown that there is little synergistic effect of combining a net present value objective function with a payback constraint and there is a possibility to increase greatly the performance of a net present value model by assigning projects to two or three risk classes and using a different discount rate for evaluating projects in each risk class. From this, several tentative conclusions may be drawn. First, the increasing use of a payback period as a secondary criterion in capital budgeting is not completely irrational since it does improve the decisions of a straight NPV model in highly uncertain environments. However, the NPV-PBK model in general leaves much room for improvement. Second, the dominant use of the NPV model seems warranted, provided different discount rates are used for different risk classes of projects. From the performance levels when only two or three risk classes are used, it appears that the NPV-RC model provides decisions nearly as good as even the most sophisticated models.

Abstract This article describes an educational innovation, computer-generated accounting assignments being developed and reduced to practice at the University of Missouri-Columbia. This instructional aid provides each student in a class with an individual, unique homework assignment on a given topic. Furthermore, it provides the student with the solution to his personal assignment. The traditional teaching aid of accounting, problems-oriented homework assignments, is substantially enhanced. The temptation to copy, inherent in the use of the identical problem for many students for several semesters, is eliminated.

Abstract The article focuses on the hypotheses that there is a tendency for students to improve academically and to realize more fully the value of communication skills following their participation in an internship program. Participants in The Pennsylvania State University's 23-year-old program were used to test these hypotheses. Penn State has a large program with a wide geographical representation. Last winter 78 interns were placed among 16 firms in 19 locations. Altogether 45 offices were represented. Internship programs are part of the academic curriculum at an increasing number of schools. They provide an efficient way to involve students in real live situations. Students can apply and reinforce their classroom knowledge. Their periodic reviews help them to better understand their strengths and weaknesses. They can evaluate competing employment opportunities before making a permanent commitment. They show that there is a tendency for both accounting and general grades to improve following an internship.

Abstract The article presents the text of the 1973 report of the American Accounting Association Committee on concepts and standards for external reporting. The treatment of uncertainty in accounting should perhaps be divided into two facets. First, there is the analytical process of observing certain selected characteristics of a factual situation for the purpose of assessing the degree of uncertainty which is inherent in the situation. Second, there is the process of designing financial reports so that the accountant's assessment of uncertainty is conveyed in the financial statements. The realization concept developed over the years as the means for dealing with uncertainty. In most instances, it was felt that recognition of profit or loss at the sales point was best since this often was the first point in the long chain of events where prediction of net cash flows was possible within accepted bounds. Exceptions to the sales point have been allowed, as previously indicated, but it should be noted that each of the realization points is an estimate and, as such, is subject to error.

Abstract This article presents comments on the article "Present Value Models and the Multi-Asset Problem," by Richard P. Brief and Joel Owen, published in the October 1973 issue of the journal "The Accounting Review." The relevance and adequacy of the internal rate of return model (IRR) is a topic of controversy in financial accounting. Brief and Owen examined the multi-asset dimension of the IRR issue, concluding that IRR is a firm model as contrasted to a single-asset model. Strictly interpreted, this conclusion would serve to render the IRR model useless, since it implies constancy of rate of return for any firm over time. The IRR model is often demonstrated arithmetically, but there is an advantage in analyzing the, model algebraically. When return on investment is realized over a number of periods, the geometric mean may be used to represent average periodic rate of return. If the reinvestment pattern is changed and a future value of $399.30 still results, the geometric mean continues to be 10%, but the internal rate of return is replaced by variable periodic rates of return. If the future value is changed, mean return will no longer be 10%. To calculate combined rate of return, reinvestment patterns must be assumed and the firm should then be considered in the context of a portfolio of assets.

Abstract Reviews the book "A Guide to Capital Expenditure Analysis," by Moustafa Abdelsamad

Abstract Presents a hypothetical situation which is helpful in teaching and establishing several basic concepts of accounting for beginning accountancy students. Concepts that can be derived from the fairy tale story; Information on relationship between assets and expenses; Suggestion that accounting entities and the owner of those entities must be clearly identified.