Knowledge that Transforms

Reviews the book "Probability and Statistics in Engineering and Management Science," by William W. Hines and Douglas C. Montgomery.

The article examines the implications of allowing salvage value to vary over the life of the asset in financial statements. Theoretically, probabilistic depreciation is vastly superior to deterministic depreciation. In probabilistic depreciation, depreciation is calculated for each possible service life, and then the average is taken, using the probability distribution of service life to weight the depreciations calculated. Whereas acquisition cost is essentially an objectively determined dollar amount, future salvage value is not. Salvage values are really only subjective guesses or estimates. It is the author's contention that salvage value is not necessarily constant, a varying salvage value can be incorporated into the probabilistic depreciation model. It takes little imagination to realize salvage value could vary over an asset's life. In most situations salvage value would vary inversely with asset service life. If probabilistic depreciation is to be implemented, allowance for varying salvage value should be incorporated. Salvage value can vary over time.

The article focuses on the role of freedom and learning in accounting education. The author here proposes that freedom, within carefully defined bounds, has a place in the accounting classroom on the basis of its support by basic propositions of learning theory. The applicability of freedom to the accounting curriculum is demonstrated by presenting as a model and example the methodology for a course in accounting and information systems. Learning can be defined as a process by which an activity originates or is changed by responding to ideas or situations. The methodology of undergraduate accounting education has typically been to elicit certain responses through a controlled environment and a system of stimuli and reinforcements together with a reward and punishment atmosphere which might be called the conditioned approach. The application of the freedom approach to accounting instruction was developed using a senior level accounting and information systems course. The objective of the course is presented in the article.

The article examines the impact of the apparent differences attributable to the alternative accounting methods in which the reported data such as income and inventories are measured, as opposed to real differences, on the decision making by the accountants. Accountants are now showing an increasing interest in understanding the relationship between accounting and decision making. Management, creditors and stockholders, both present and prospective, are the major users of accounting data. Management uses the accounting data for planning and control decisions in so far as the accounting data reflect the operating results and the financial position of the business organization. Similarly the stockholders and the creditors want to make decisions regarding their investment in the business organization. In decision making, a principal input means a decision input upon which the decision maker ultimately wants to base his decision. A surrogated input is a decision input upon which the decision maker bases his decision insofar as the surrogate reflects a principal.

The article focuses on the use of computer as a teaching tool in accounting. Using the computer as a problem-solving, teaching tool benefits the process of learning in a variety of ways. The successful utilization of analytical techniques comes only when one understands the synthesis of the technique. Using the computer as a teaching tool has the potential for reducing computational burdens involved in analysis and thereby increasing the range of approaches that may be made to a problem. As a result, the student is able to spend more time on substantial issues and less on the detail work involved in many cases. It is then possible for a better understanding of the analytical and theoretical aspects of the problem. Essentially, the computer in its role as a teacher creates and controls an environment in which two kinds of learning may occur. At an early level in their college program, accounting students should complete coursework in basic computer programming. There should be coverage of the capabilities and limitations of electronic data processing systems.

The article examines probability revision behavior based on data generated by single and joint information systems. The bases for measurement comparison have numbered a few less than the number of measurements themselves. Some authors consider the behavior of income in response to changes in accounting methods. Other authors appeal to underlying economic variables and suggest that some measurements more realistically reflect the economic phenomena than other measurements. The author remarks that, although this research project is germane to several accounting issues, its merit does not lie in the fact that it resolves these accounting issues, but rather that it presents a systematic set of theoretical statements for interpreting the issues and predicting behavior. Messages from an information system discriminate among the underlying set of objects on which the system operates. The ring of an alarm clock discriminates among times of day, a stop sign discriminates among possible operations of an automobile and a book cover discriminates among possible contents of the volume.

The proposed course constitutes an introduction to the discipline of accounting as a whole, and has a concentration in financial accounting (meetings 6–24 and 26–32). All parts contain conceptual, mechanical, analytical (quantitative and qualitative) and evaluative emphases, and the course is also somewhat issue oriented. Coverage of social and management segmentations in addition to financial accounting, serves the purpose of introducing the student to the whole discipline. Coverage of financial accounting is not as intensive nor extensive as some aspects of the traditional introductory course, but includes an evaluative dimension in the form of various valuation methods, as well as coverage of the final stage in the communication process (attest function). This specific coverage taken together with the different manner in which all aspects of the financial accounting function are introduced, provides an appropriate perspective of the financial accounting segmentation.

Reviews the book "The Income Tax and Business Decisions," by William L. Raby.

The article focuses on the research paper entitled "The Conceptual Foundations of Absorption Costing," appearing in the April 1972 issue of the journal The Accounting Review. The paper suggests that, fixed factors are fixed as to the available quantum of services but are divisible as to the use of these services. In other words, even though the fixed factors are indivisible as to acquisition, the flow of services they will render are divisible over their useful life. On the other hand, traditional economic theory treats fixed factors as being fixed as to time and not divisible as to use, thereby generating the familiar nonlinear total product and variable cost curves derived from the two factor production function. It is also stated that, if the fixed asset is used at an accelerated rate, then its value would be increased. Therefore, if a fixed factor is divisible as to use, its value is both a function of use and time. That portion which is a function of time should be treated as a period cost.

The article focuses on a study which determined whether using a business game in introductory accounting had any impact on student attitudes toward accounting and abilities in the subject. Business games have had an enthusiastic reception in business education. Three advantages are often mentioned for a gaming experience in the learning process. First, participant's attitude is likely to be more positive towards the subject matter. Second, because of the active involvement and the need to seek solutions, ability to understand the subject matter, and to subsequently use it in problem-solving, is improved. The third advantage is developing an ability to integrate a number of learning experiences leading towards a better understanding of total subject area. The article concludes that the game is simple to use and does not require a substantial change in teaching methods, but from experiences in earlier quarters it does require a different type of student participation. There is no doubt that the administration of a field experiment in an on-going classroom environment is highly complex.