Knowledge that Transforms

From a tax standpoint, the concept of business income as it exists as a part of the "generally accepted" principles of accounting has some notable weaknesses. The defects are associated primarily with the entity concept, the going concern postulate, and the period convention. To a lesser extent, there are faults connected with the manner in which the realization concept, the "rule of conservatism," and the "maintenance of dollar capital principle" are applied. Most of these deficiencies might be absent or minimal if taxable profit was conceived as an individual matter and considered to arise only after there had been a recovery of the money (or equivalent) that an individual had invested in a profit seeking venture of any sort. The manner of calculating profit, unrecovered investment, or loss would depend, in part, upon the type or nature of the investment. The concept embraces the idea that the tax on profits arising after a short recovery period should be larger than the levy on profits realized after an extended period of investment recovery. There is reason to suggest that a number of desirable consequences might attend the use of such a method of measuring profit for tax purposes. There might be greater equity in taxation in several respects, less risk to investors, and resulting stimulation to the national economy. The danger of inequity in certain other cases, and the possibility that the use of such a method might tend to impede the movement of capital funds are the major negative potentials. In spite of these defects, it is contended that the nation would benefit if means could be found to effect a transition to an investment-recovery-first basis of measuring profit for tax purposes. At the least, the concept might have value as a standard or viewpoint to use in the analysis of the prevailing tax requirements, and in the evaluation of proposed reforms in the tax system.

Reviews the book "Government and Business," by Vernon A. Mund.

The correlation of accounting instruction with instruction in other business fields is to focus attention upon the interrelationships among business courses and to emphasize the need for more comprehensive programs to develop professional business responsibility. The purpose of integration is to reverse the usual emphasis and come out with management skills rather than only technical skills. Business practitioners are much concerned about the newly conceived role, which they hope to play in an expanding commercial and industrial society. The principal task of the college of business administration is to develop competent students, well equipped to pursue lifetime careers in the management of economic and business affairs. Before considering the responsibilities of the accounting curriculum for carrying out that task, two qualifications should be made clear. First, students who expect to become professional accountants must be thoroughly grounded in the conventions and techniques of the profession in order to meet the immediate requirements of the first job. Second, mass education has brought to colleges of business some students who have neither the potentials nor the interests to assume positions of administrative responsibility.

Reviews two books on federal taxes. "Montgomery's Federal Taxes--Corporations and Partnerships, 1949-50," by Robert H. Montgomery, Conrad B. Taylor and Mark E. Richardson and "Montgomery's Federal Taxes--Estates, Trusts and Gifts, 1949-50," by Robert H. Montgomery, James O. Wynn and G. Harold Blattmachr.

This article focuses on the control over the distribution of installments in a liquidating partnership. In the opinion of the author, it would be entirely logical to insist that since the reasons for the capital investments really terminate with the decision to liquidate the firm, balances being maintained for the purpose of covering the possible losses of the contributors, the interest allowance should be eliminated during the liquidating period. In fact, the earlier distributions to those in the stronger position do in a way take the place of an interest allowance. Similarly, it would appear logical to insist that salaries be allowed to partners during the liquidating period only for services rendered, and that such salaries should be deducted from proceeds and disbursed rather than credited to capital. On the other hand, if a partner's capital balance is such that it will not likely cover his share of liquidation losses, and if services which can be performed by this partner are needed in the liquidation activities, it may be appropriate to ask that he devote as much time as possible, using the salary allowed for such contribution to bolster his capital position.

Reviews the book "Management of Industrial Enterprises," by Richard N. Owens.

Reviews the book "Accountant's Rapid Tax Finder," by Paul M.Johnson.

Reviews the book "Advanced Accounting," by Arthur W. Holmes and Robert A. Meier.

Reviews the books "Monetary Policy for a Competitive Society," by Lloyd W.Mints; "Federal Reserve Policy-Making: A Study in Government Economic Policy Formation," by G.L.Bach.

All business firms have felt the impact of rising prices in one way or another. In many cases their financial statements have yielded peculiar results. On the balance sheet, the historical cost basis of valuation of plant and equipment, and the "lower of cost or market" method for the valuation of inventories have tended to undervalue assets grossly. Credit ratings, current ratios, and insurance coverage often cannot be determined adequately from these figures. On the income statement, reported earnings have often soared to unprecedented heights, due mainly to the matching of out of date inventory and depredation figures against current, higher selling prices. Accompanying this exaggeration of profits are the problems of higher replacement costs of inventories and plant, of sharing these illusory profits among the government taxing agencies, laborers, and stockholders, of the determination of future selling prices, etc. The accounting records become much less useful as aids in solving these perplexing problems, in as much as they have not been adapted to the changing price level.