Knowledge that Transforms

Solvency, Financial ratios, Bankruptcy, Financial statements

Discounted Cashflow, Planning Horizon, Forecast horizon

Firms which elect to use accelerated depreciation for tax purposes while using straight-line for reporting purposes have only one approved method for recording the difference between book tax expense and the tax liability.' This method relies on a deferred credit account in which the difference between the tax expense (calculated using straight-line depreciation) and the actual tax paid is recorded. The reported net income resulting from this procedure is the same as it would have been if straight-line depreciation were taken for tax purposes. Tax allocation is considered an extension of accrual accounting to include` taxes. The logical grounds for such inclusion are laid in the classification of taxes as expense items.

Price-level costs, Historic costs, Questionnaire

Opportunity Costs, Linear Programming, Discounted revenue valuation

Someday someone must undertake a sociological analysis of the role of the study report in American society. Community leaders commission reports or conduct self studies on the extent and adequacy of community services. Corporations hire management consultants, some of whose reports are buried in dusty files. Government agencies conduct, or have conducted for them, surveys of their operation. Professions set up study commissions to examine all manner of things-their relation to government, their salary and fee scales, their ethics, and the adequacy of their training and performance. In a few cases, these surveys disclose gross mismanagement: usually when a crisis in an organization has been widely known. However, more often the survey reports little that was not known before-at least by the well informed. The sociology of the study report would not question whether a given set of recommendations was right or wrong. Instead it would examine the social process of the report. Who sponsored and promoted the study? What functions-manifest or latent-does it serve for them? Does it function to educate the elite or to postpone action? Or does it function to promote the special point of view of a radical minority? What are the preconceptions, the special strengths and short-comings of the views of the preparers and of the methodology employed by the study? And finally, are the report's findings buried, partially and slowly adopted, or used as a program for radical change? These questions are raised because of the appearance of Horizons for a Profession: The Common Body of Knowledge for Certified Public Ac-

The analysis of methods begins with the problem of definition. Many definitions are possible. Not all are equally useful. This article offers two general concepts that are defined according to their logical consequences. One of them enables us to view many common patterns (such as straightline or sum-of-digits) as particular results of the same general method. The two concepts to be compared are labeled conventional depreciation and time-adjusted depreciation. Each has its distinctive characteristic and a different effect on reported net income. Throughout this article, I shall assume economic rationality and perfect foresight with all expectations fully realized. For simplicity, taxes will be ignored.

DCF, Discounted Cashflow, Cost of Capital, Valuation