Knowledge that Transforms

Abstract In spite of all that has been written in recent years with regard to depreciation, confusion still persists. A fairly recent article attempts to prove that owners of buildings are cheating themselves by charging depreciation at too high rates. Rates of two to five percent, varying according to the type of construction and other conditions, are too high, the writer argues, not because buildings of these types last, on the average, longer than the corresponding number of years, but, forsooth, because an annuity of the amount of the annual charges produced by using these rates will, when properly invested, amount to a greater sum than the cost of the building by the end of the given length of life. For example, $50,000 building whose estimated life is fifty years will give rise each year to a charge to depreciation of $1,000 on the straight-line method. An annuity of this amount invested at 5% will amount to no less than $209,348 in the same length of time. The annuity required to accumulate $50,000 under these conditions is only $238.89. "If the annual depreciation charge is set aside," says the writer, invested in interest-bearing deposits and the interest is annually reinvested, the investment is recovered within a much shorter period.

Abstract The article discusses about a message that was delivered during a speech by the president of American Institute of Accountants W.H. West. According to West, the Institute must be, of necessity, and of its on volition, interested in the work that peoples are doing for among the fundamental purposes of the Institution are two, the advancement of the science of accountancy and the development and improvement of education in accountancy. The extent to which people are living up to this desire is another matter. In this committee they have a very definite and good working contact with the Association. West is also proud about the library that the accountants have in their possession. It is not very easy for the man who is not in the City of New York to avail himself the library of the Institute. The Committee on Endowment, who administer the affairs of the library have given instructions to librarians to acquire every publication, every book, every pamphlet, every article that is written on accountancy or related subjects and place them on the shelves so that they might be available. This means that with the system of indexing by subject, author, publication, etc. the matters are readily able to find anything that is published which one might ask for.

Abstract When fixed assets are scrapped there is a possible loss to the owners in that costs unrecovered through depreciation charges made during the life of the asset plus cost of demolition may be greater than the salvage value. In order that there may be as few factors as possible with which to deal, it will be assumed in this study that salvage values exceed the cost of demolition, with the result that abandonment losses may be regarded, for all practical purposes, as arising from the excess of unrecovered costs over net scrap value. The causes of abandonment may be classified into three groups, 1. physical factors, or wear and tear; 2. accidents; and 3. functional factors, or obsolescence and inadequacy. These causes of abandonment must be kept in mind when considering the incidence of abandonment losses. This study will be limited to such losses as they apply to fixed tangible assets. Machinery and buildings will be taken as representative of this group. In most cases the principal factor entering into an abandonment loss would be the item of unrecovered cost of the old building or machine.

Abstract Many writers insist that accounting principles are fairly well standardized but a brief scrutiny of a few presumably representative publications leads to the belief that even a fair degree of standardization has not as yet been attained. A most interesting statement was noticed, for example, in a book bearing a 1925 copyright to the effect that cost of manufacture in no way is concerned with the in-process inventory either as of the beginning of the fiscal period or of its end. Moat cost systems fail because the distribution of overhead is at fault. But the situation cannot be improved to an appreciable extent by general suggestions in as much as fixed rules are impossible. In any calculation related to manufacturing expense the ultimate object is to apply such cost to the goods being produced and this application should proceed in a direct a manner as possible under the existing circumstances. The method of direct changes having been applied a fully as conditions justify, the remaining portion of cost must be allocated somehow and in the nature of the case the distribution of this balance is bound to be accomplished on a more or less arbitrary basis.

Reviews the book "Accounting Theory and Practice," vol. 2, 2nd ed., by Roy B. Kester.

Abstract A number of difficulties of accounting analysis are presented by the building construction company. The kind of concern whose problems will be described enters into contracts for the erection of various types of buildings, has dealings with subcontractors, hires laborers, buys materials, makes plans and estimates on jobs contemplated, and perhaps owns a few lots and does a little building on its own account. All these activities require a precise and careful accounting, the success of which depends on a thorough understanding of the financial significance of the various operations. The principal problems have to do with the keeping of accounts with the jobs and with the customers. The proper handling of the jobs is largely a matter of cost accounting. Every job must be charged with all labor and materials, payments to subcontractors, and other costs which can be assigned to it. The customer's account in the case of a cost-plus contract is of fairly simple nature. The costs are transferred from the job account to the customer's account at appropriate times, and a further charge is made for the proper portion of the fee.

Abstract The teachers of accounting as a group have made the major contribution, to the subject in the last thirty years. Yet, in spite of this, the technique of imparting a knowledge of accounting principles and practices, has been given very little constructive thought. Experts in educational psychology have been able to accomplish wonders in primary education by studying the technique of learning by children and of teaching for children. Certainly research might well be made in analyzing the ways of criminals and the methods under which they have operated in the past, as well as methods for preservation and especially methods of detection. Method of interpretation research in developing the best methods for presenting accounting data - the development of non-traditional statement forms, the application of graphics to accounting, the art of simplifying the essentials for report presentation and so on. The public accountant naturally enough perhaps gives so large a portion of his time to the balance sheet and other statements as of a given moment of time or at best for the fiscal period, that he has not had much opportunity to give thought to the methods of analyzing accounting data over a considerable period.

Reviews the book "Cost Accounting," by W.B. Lawrence.

Reviews the book "Theory of Accounts," by D.R. Scott.

Abstract This article focuses on the use of costs in setting up selling prices. In almost every presentation of the advantages and purposes of a cost accounting system the possibility of using costs as the basis for fixing selling prices is given special attention. In so far as the individual producer can not set his own selling prices he needs a better cost system and more detailed analyses of cost data in order to compete successfully in the market. Price determination is a complex process with many interrelating forces and proceeding largely by trial and error methods. Even the monopolist, setting prices at will in order to get the highest possible return, must know his costs in order to compare the net return from different prices. Cost, then, can sometimes be used as a direct basis from setting selling prices, is often one of the important factors in the determination of provisional selling prices, but many times the problem of the individual producer is to keep his costs below a selling price determined by general market forces and conditions.