Knowledge that Transforms

Determining the cost of inventories for financial statement purposes has presented the accounting profession with a predicament which has worried many accountants for a number of years. It is desirable to determine inventory cost for financial statement purposes in a manner which provides the best indication of periodic income for each particular firm. This should allow comparisons to be made of a company's economic progress from year to year without misleading distortions. The two goals comparability among companies and between years on the one hand and selection of methods to suit individual circumstances, on the other seem to be incompatible. This is because there is wide disagreement among companies concerning the inventory flow assumption which provides the clearest indication of periodic income. The survey of corporation annual reports conducted each year by the American Institute of CPA's reveals that none of the three primary procedures LIFO, FIFO, or average-is used by a majority of companies.

We have given formulas to aid in the computation of real rates of return and present values if price-level changes have occurred or are anticipated, in order to better evaluate the performance of various assets or the feasibility of acquiring an asset. It has been demonstrated that price-level changes can seriously distort the rate of return realized on an investment. Finally, it has been argued that one should consider price-level changes, actual or anticipated, before appraising the performance of an asset or purchasing one.

Reviews the book "Management Accounting for Hospitals," by Philip J. Taylor and Benjamin O. Nelson.

The article presents information on recommendations made by the 1964 American Accounting Association Committee on Doctoral Programs. The committee was charged to investigate and to make appropriate recommendations concerning doctoral programs with a concentration in accounting. The primary role of doctoral programs in accounting at the present time is to prepare the student for university teaching of accounting. There are indications that the future may place increasing demands upon such doctoral programs to prepare students for a research career in public or industrial accounting. The increasing number applying for entrance to doctoral programs each year makes it possible for universities to exercise greater selectivity in the choice of students. The courses in accounting should cover thoroughly the areas of financial accounting, management accounting and the analytical uses of accounting data. Doctoral courses should be based upon an educational philosophy distinct from those of undergraduate and advanced professional programs offered by a university.

The article focuses on basic procedures under which a corporation may liquidate. One procedure, which is not a plan for tax purposes, is to let the corporation convert all assets to cash and then distribute the cash to the shareholders. In the absence of tax planning, the corporation would have to pay a tax on gains resulting from liquidation of the assets, and the stockholders would have a tax to pay on the gain resulting from the redemption of their stock. Another procedure, which permits the postponement of taxes, is to elect to follow the conditions outlined in Section 333 of the U.S. Internal Revenue Code. The benefits of this section are available only if elected by stockholders who at the time of the adoption of the plan of liquidation own at least 80 per cent of the total combined voting power of all classes of voting stock. The provisions of Section 337 of the Internal Revenue Code outline another procedure which may be followed in corporate liquidations. If these provisions are followed, there is no postponement of taxes, but double taxation is avoided.

The article presents news of recruitments of education faculties of accounting in various universities and colleges of the U.S. that appeared in the July 1965 issue of the journal "The Accounting Review." Educator Percy B. Veargan has accepted a professorship at the University of Georgia, Athens, Georgia, effective from September 1963. Also, the educator Marion Posey has been appointed assistant professor of accounting. A.B. Carson will join the faculty in the fall as visiting professor of accounting at the Arizona State University, Tempe, Arizona. Carl D. Hughes, who has been completing requirements for the doctorate at the University of Washington, Seattle, Washington, is joining the faculty in the fall as an assistant professor. Educator Alan F. Smith will join the accounting faculty as an assistant professor in September at the Indiana University, Bloomington, Indiana. Educator Samuel Frumer returned in June from leave as a visiting associate professor at Columbia University, New York City, New York.

Reviews the book "Auditing: A CPA Review Text," vol. 2 by Benjamin Newman.

A survey of doctoral programs with accounting majors or concentrations has been completed with the cooperation of all colleges of business administration which are members of the American Association of Collegiate Schools of Business (AACSB). Originally intended as a part of the work of the American Accounting Associations 1964 Committee on Courses and Curriculum-Doctoral Programs, the results of the survey were not included in their report because the members of the committee favored a dynamic approach dealing with the direction doctoral programs should take in the future. The survey, largely concerned with the present status of doctoral programs, may be labeled by some as a "nose counting" effort. Many of the participating colleges, however, expressed a desire to learn the results of the survey and this article will attempt to summarize the information so kindly supplied by representatives of all 113 colleges. Of the 113 AACSB colleges, 34 percent offer a doctoral program with a major or concentration in accounting as of the 1963-64 scholastic year.

The article examines existing methods of coding accounting principles, suggests a uniform code that would identify the principles clearly, and organizes the coded principles in a way as to aid further research. The organization Accounting Principles Board (APB), in June 1963, approved the preparation of an inventory of generally accepted accounting principles which is useful in the present-day accounting activity. APB's inventory, Accounting Research Study No. 7, accounts for sales, revenues, income, cost of sales, expenses, gains and losses in such manner as to present fairly the results of operations for the period or periods of time covered. Sales, revenues and income should not be anticipated or materially overstated or understated. Accordingly, there must be proper cutoff accounting at beginning and end of the period or periods. The coding of conditions, concepts or postulates, principles, and practices of accounting should make it easier to improve the definitions, logical patterns, of accounting theory, and should provide a base for reference to specific ideas in articles, books, etc. by accounting theorists and committees.

This article focuses on the accounting criteria for judging the economic realities and the intent of the parties to a business combination. The present accounting criteria for judging the economic realities and the intent of the parties to a business combination are inadequate. The reduced importance of the relative-size criterion has resulted in an indiscriminate use of the pooling concept. Effective control over the assets, management, and ownership of the succeeding entity is more important in the determination of economic reality than is a theory based upon a proportional continuation of the former interests. The purchase concept adequately conforms to the requirements of accounting regarding asset realization and objectivity. A merger proposal is merely a specialized form of capital-budgeting decision. Consequently, all alternatives to the merger proposal should be considered. If a firm wishes to maximize conventionally reported earnings, the pooling basis may be misleading and result in the acceptance of undesirable investment proposals.