Knowledge that Transforms

The article presents some formulae for the calculation of depreciation using declining balance method (DDB) and sum-of-years-digits method. These formulae will enable the non-mathematician accountant to compute such future provisions and reserve balances directly. These formulae may be used for calculating isolated items without the necessity of calculating the intervening items. The auditor can use them to test depreciation provisions computed by his client on a year-by-year basis. The tax planner can use them to see just what depreciation he will have left in later years. Many other similar applications will occur to the reader. In addition to these computational uses the formulae may be used for theoretical computations of behavior in the general case. Since the formulae are applicable in all instances, general rules may be proved. It is commonly stated that shortly after the mid-point of life it is advisable to switch from DDB to straight-line depreciation. To base this statement on observations of a number of specific examples is dangerous.

Reviews the book "Cost Finding for Hospitals."

This article presents some problems prepared by the Board of Examiners of the American Institute of Certified Public Accountants, which were presented as the second half of the examination in accounting practice on November 7, 1957. The candidates were required to solve problem 1 and any three of the remaining four problems. The total weight assigned to this section of the examination was 50 points and the examiners point out that the suggested time allowances are approximately proportional to the point value of the various problems. The suggested time allowances for the problems were as follows: Problem 1, 30 to 45 minutes; any three of the remaining four problems, 150 to 225 minutes. The problem 1 asked the students to prepare a work sheet showing details of the computation of the corporate Federal income tax for the fiscal year ended May 31, 1957 of Taxpayer Manufacturing Corp. In another problem, the trial balance sheet of Pacific Import Co. has been provided to students and they were asked to prepare a columnar worksheet for the company and its branch with columns for "Trial balance," "Adjustments and eliminations" and "Branch income statement."

The article asserts that accounting teachers have a definite responsibility, not only to accounting students but also to the accounting profession, to keep abreast in this ever-changing accounting world. Although these teachers have certain resources available, at times they may be inadequate and as a consequence they may have to look elsewhere for assistance. When looking elsewhere perhaps the faculty fellowship, if available, will fulfill this need. The faculty fellowship is considered a definite step in the right direction, and it is his hope that other firms will initiate similar programs. In addition to acquiring new, or as the case may be, broadening old technical knowledge the fellowship is also an excellent morale builder or interest stimulator. After teaching for several years and then being exposed to the interest and enthusiasm of the various staff members, it challenges one to want to get back in the classroom and turn out the best product he can possibly produce. Teaching from the textbook from day to day may not be as stimulating as it should be, so perhaps teachers need to be reminded occasionally that they are members of a vital and dynamic profession.

Reviews the book "Introduction to Statistical Reasoning," by Philip J. McCarthy.

The article explains net operating loss with the help of examples. The article asserts that taxable income is determined annually on the basis of a year's operations. Section 172 of the Internal Revenue Code permits the taxpayer a degree of relief when loss years are intermingled with profit years, provided that any such loss year is due to a loss incurred in trade or business, is the result of a casualty loss, or is occasioned by a loss on the sale of real or depreciable property used in trade or business. The need for explaining how a tax return loss is converted into a net operating loss is felt. While it is relatively easy to explain to a student the various technical steps involved in calculating a net operating loss under the code, it is rather difficult to convince him of the logic involved. Though the instructor may emphasize initially that the purpose of the various adjustments required to convert an income tax loss into a net operating loss is to arrive at an economic or out-of-pocket loss, the student can quickly lose sight of the ultimate objective if he mechanically applies the provisions of the code to a given set of facts. Thus, the article tries to explain logically the calculation of net operating loss.

Reviews the book "Automation in Business and Industry," by Eugene M. Grabbe.

Reviews the book "The Joint Venture and Tax Classification," by Joseph Taubman.

None of the foregoing represents the ultimate answer to this Herculean problem; nevertheless, I am anxious' to avoid having this universally significant issue resolved without a full, fair and objective examination. The problem is one which should have the thoughtful consideration of all sections of our society. The independent, professional accountant, who professes an obligation to the public at large (and not to his client alone) must, in my opinion, contribute his special knowledge and skills in the fields of accounting and taxation, so that a solution which is in the best interests of society as a whole (as distinguished from a solution favoring but a single segment thereof) will have been ultimately wrought.

Several years ago the Board of Examiners of the American Institute of Certified Public Accountants through its Educational Director requested the American Accounting Association's Committee on CPA Examinations to conduct a project to help the Board of Examiners stockpile questions on Theory of Accounts for the CPA Examination. In an attempt to increase the number of questions submitted, the 1957 AAA Committee decided to try some modification in the procedure previously followed by the Committee. The new procedure adopted by the 1957 Committee was as follows: Each accounting department head or chairman in colleges that were members of the American Association of Collegiate Schools of Business were requested to appoint a staff member in their department to encourage fellow faculty members to submit questions and answers in the theory area to the AAA committee on CPA Examinations for processing and forwarding to the Board of Examiners, to recommend to the Chairman of the AAA Committee on CPA Examinations accounting teachers in other schools in their area.