Knowledge that Transforms

This article tries to find a answer as to whether leasehold improvements are taxable income in the U.S. The Treasury Department has said yes. The lower courts have said no. The issue has not yet been decided by the U.S. Supreme Court. The U.S. Supreme Court attempt to uphold a tax on leasehold improvements will be hampered by its severance theory, that the income must be "something of exchangeable value proceeding from the property, severed from the capital, and coming in, being 'derived,' that is, received or drawn by the recipient for his separate use, benefit, and disposal." An improvement to land, either at the time title to the improvement passes to the lessor subject to the lease, or on reversion by default or any other cause is not exchangeable except as attached to the land. Even the relation of embryo and prospective parent does not obtain to give color to the claim of income in process of realization. The improvement will never be severed from the land except as salvaged material not a part of the growth process.

The price legislation referred to in this article includes the Robinson-Patman Act, the various state resale-price-maintenance laws together with the Miller-Tydlings amendment, and the minimum-price laws, which have recently enacted by the U.S. government. Some of the features which these laws have in common have been suggested. These laws impinge upon prices in apparently different ways, the first deals with relative prices paid by retailers, the second with prices relative and absolute charged by retailers for identical branded goods, and the third group with prices charged by retailers on any and all goods relative to the costs of those goods. To discover the real significance of these laws, one must be concerned with the identity of sponsors, their motives, and the state of mind of the public and the legislators who approved them than with the defenses that can be offered for them. The broader significance of recent price laws is that they are antichain-store and antiprice-cutting laws. As such, they are designed to protect the general run of independent merchants from the competition of those who threaten the existing order.

For many years, the accounting professionals in the U.S. have recognized the need for the preparation required by accountancy students in the field of auditing, and conceived the idea of the link between theory and practice as a business clinic where students might work among the records of actual transactions. In 1914, Robert H. Montgomery, a professor at the Columbia University, New York City obtained a number of sets of used account books which formed the basis for the course of study which has been given since 1915, termed as the Auditing Laboratory. From time to time since, additional records have been obtained until at the present time there are approximately 100 workable sets of books of greatly diversified activities. Questions and problems, to be solved only by an actual examination of the books and other records, provide the basis of the student's work. This gives him a practical working test under conditions which very closely correspond to those met in actual practice. All through the work done by the student, the preparation and care of his work papers are carefully watched and criticized; the preparation of audit programs and the proper filing of work papers in the permanent and current files for the different engagements are also stressed. The Auditing Laboratory contains labor saving devices, such as adding and other computing machines, slide rule, etc., etc., in the legitimate use of which the student is urged to become adept.

In the article, the author discusses on the progress made in the balance sheet practices. There is still a good deal of confusion, however, due largely to the lack of uniformity and definition in balance sheet terminology and to the use of narrow or "specialized" methods of approach in our efforts to solve the problem. This is particularly true for the moment designate as the "net asset" section of the corporate balance sheet. The influence of the double entry method on the reasoning of accountants has long been a suspicious issue. The quality of accountant's logic has on occasion been impaired by their passion for balance. Therefore, the author starts with the corporate balance sheet in statement form, a showing based on the formula of assets minus liabilities as representing net assets. The "three layers" of balance sheet have been characterized as the gross economic capital, itemized and individual liabilities and their total, and the net economic capital of the enterprise. The author submits that the subdivision of net economic capital is to be made on the basis of origins, restrictions on withdrawal, and administrative control.

Reviews the book "Commercial Banking Reform in the United States," by Leonard L.Watkins.

In this article, the author discusses issues and beliefs on accountancy as a profession for well-educated men. He observed different views and publishing of various eminent members of the accountancy profession and researchers regarding this topic. According to these studies the thought that members of the accountancy profession should have well-developed intellectual, moral and cultural faculties is a relatively new idea in the history of the profession. The author reports that the accountancy profession had its beginning in England, probably at some time during the seventeenth century. It seems quite probable that the early public auditors, or public accountants, of England worked single-handed, but in the course of the increased recognition and prestige which these men obtained from the field of business it became necessary for the principal to secure the services of assistants. The idea of the desirability of a technical education for those entering the accountancy profession gradually took form after the year 1900. It is argued that the profession needs greater educational as well as personality qualities because the professional should have engagements in complex and technical duties, such as, auditing, the installation or revision of systems of accounts, special investigations, municipal or other governmental auditing and system installation, engagements pertaining to the financial affairs of trusts, receiverships, bankrupt and decedents' estates, and audit and system installation engagements involving cost accounting.

Reviews the book "Business Cycles: a Theoretical, Historical, and Statistical Analysis of the Capitalist Process," by Joseph A. Schumpeter.

This article discusses the accounting practice for repossession and trade-ins in automobile industries. It describes that in automobile accounting the used-car traded in and the possession require special consideration if operating statements and balance-sheet accounts are to mean anything. Car dealers find it necessary to borrow heavily on their inventory of cars. The usual procedure is to arrange with some finance company to advance up to 100% of the "blue-book" value of each car placed on the floor of the dealers showroom or on his lot. Used-car advances will probably be limited to 80% of "blue-book" value. The dealer signs what is known in the trade as a "flooring note," securing this note with title to the car, and receiving a trust receipt for the car. Under this arrangement the dealer may sell the car, but the finance company does not transfer title until the flooring note is paid, usually from the proceeds of the sale. It sometimes happens that the contract will not cover the flooring note since price reductions must sometimes be effected to move cars which have remained on the floor too long. Based on these consequences of second-hand cars, their reconditioning, and responsiveness, it is assumed that the used car presents accounting problems peculiar to automobile merchandising.

This article presents four questions, prepared by the Board of Examiners of the American Institute of Accountants, for accounting students which were asked in the Certified Public Accountant (CPA) examination in accounting theory and practice held in May 1939. It also provides explanatory answers to these problems. Candidates who appeared in the examination were required to solve all problems in six hours. The first question described here is concerned with the topic of stock and investment accounting and decisions; while the second one is concerning sales and purchase in retail trade accounting. The other two questions are concerned with accounting problems of property lease and real estate businesses. Answers are detailed with special comments for clarifying the statements prepared in answers. Proper scheduling of time for each question individually by the student is also suggested to effectively solve these questions.

The most extensive treatment of depreciation by the U.S. courts has been in the field of public-utility rate regulation; but depreciation has also been considered in other types of cases, including: income tax cases, the determination of corporate income which can be distributed as dividends, the settlement of partnership agreements when the amount of income is in dispute, the life-tenant remainderman situations, master-and-servant cases when a part of the servant's compensation is a share of net income, patent cases when the royalty is a portion of net income, and eminent domain cases in the determination of the value of the confiscated property. In building up an interpretation of depreciation provisions over the years, the courts have proceeded much as the same way; that is, they have attempted to interpret the laws according to accepted practices and standards. Although there is an occasional cross citation, the cases on public-utility rate regulation, in which depredation is involved, seem to constitute a separate group, unrelated to income tax and other types of cases. In the opinion of the author there has been a definite trend in recent years toward the acceptance of complete, systematic depreciation accounting and the recognition of the inevitably close relationship which exists between the periodic allowance and the deduction made in rate-base valuations.