Knowledge that Transforms

The article focuses on accounting principles for the investment credit. Opinion number two of the Accounting Principles Board indicates three separate and acceptable methods of accounting for investment credit. Method number one follows the concept of tax law by treating the credit as a reduction of the cost of the asset and apparently it is the method favored by the majority of the Board. One important advantage of this method is that the depreciable base is ordinarily the same for tax and financial purposes. Method number two follows the concept that the credit is a direct reduction of tax expense to be pro-rated over the life of the asset. An interesting aspect develops when full current use of the Investment Credit is not possible because of the limitation in the law. The investment credit carry-forward may be applied against the tax liability in any one or all of the five succeeding years. The entries under each method would be to write off the carry-forward against the tax liability.

The article presents information on the difference in treatment by tax laws in various types and amount of income. As long as the income tax laws make a distinction between the taxation of ordinary income and capital gain, there is the difficult problem of determining the real nature of oil and gas as it is severed from the earth. On the other hand, the production of oil is a business and business income is considered to be ordinary income. Replacement Value, on the other hand, if oil is considered to be stock in trade, then percentage depletion provides a benefit. One method to assure the oil investor a return of his invested capital tax-free would be to charge all net profits to a reserve for depletion until the aggregate amount in the reserve equaled the amount of investment in the property; then no further depletion would be allowed. This would serve to reduce considerably the depletion now allowed the lessor. The tax laws are full of instances of differences in treatment for various types and amounts of income, due as much to political considerations as anything the. Percentage depletion is one more example of the conflict between proper determination of net income and the measurement of taxable income.

This section of the periodical The Accounting Review is devoted to matters of particular interest to accounting instructors. What is the value or usefulness of academic writing? There are probably few words that create as much difficulty and disagreement as the word "value." As a group, accountants are pragmatists (i.e. if it is useful and works, it is good; if it is not useful or does not work, it is not good); therefore, useful could be substituted for "Value." Now to rephrase the question into two parts: Is writing by the academician useful to him? Is writing by the academician useful to the reader? Each of these questions can be broken into two parts what the writer or reader thinks he will get out of a particular article and what in fact he actually does get out of it. This paper will attempt to give a preliminary answer to one part of the questions raised. It will try to say what the academic writer think he wilt get out of publishing an article. To attempt to answer this question a survey was made asking why teachers of accounting write articles.

The article presents information on news related to accounting. The Association of Canadian Schools of Commerce and Business Administration held its seventh annual conference June 2, 3 and 4, 1963 at the Faculty of Commerce, Laval University, Quebec. Papers were given on the economy of the firm, education for operations research and developments in behavioral science theory. The thirteenth annual Tulane Tax Institute was held September 18, 19 and 20, 1963, in New Orleans. Current developments in federal taxation, tax planning, tax accounting and oil and gas tax problems were discussed. The University of Hawaii and the Hawaii Society of Certified Public Accountant's jointly sponsored a second annual Conference on Government Accounting at Honolulu May 8, 9 and 10, 1963. The next conference of the Australian Association of University Teachers of Accounting will be held at the Australian National University in Canberra on January 25, 26 and 21, 1964. Papers will be presented on the accounting research studies, on financial mathematics and accounting and on "Accounting in the Administrative Arm of Government-The Scope for Reform." The 21st Annual Institute on Hospital Accounting was held at Indiana University in July.

Reviews the book "Towards a General Theory of Accounting," by R.J. Chambers.

The omnipotence of historical costs in financial accounting is traditional. Traditions tend to be unyielding and revered; they cannot and should not be overturned lightly. Inroads, however, have already become well established. To the extent that accounting for the historical costs of current assets is presumed to embrace the attributes of relevance, objectivity, and inviolability, it is treacherous as well as traditional. If the primary goal of financial accounting is objectivity in the meaningful measurement of income and financial position, historical costs must give way to current market values and replacement costs. In the vast majority of situations such measurements are objectively feasible. Their use could go far in eliminating the manipulative aspects and inconsistencies in financial statements and in restoring their economic relevance. The inadequacy of historical cost information becomes less obvious to the outsider and the discrepancies between accountants' measurements and current exchange prices become less directly observable by the outsider, accountants' defenses seem to stiffen and conservatism and realization and historical costs are embraced as being of paramount importance.

The article comments on a manuscript "The Accretion Concept of Income," by professor G. Edward Phillips. The Philips article demonstrates quite well that progress in accounting theory should begin with developing a single income concept, rather than a variety of income concepts, and that this single income concept should also aid various interested parties in making a variety of decisions. His point that simply because accountants must supply varied data for many different uses, does not imply a need for more than one concept of income is well taken. He says, agreement on a meaningful concept of income is essential to improvement of the financial reporting function of accountants, and there is no inherent reason for this concept to interfere with the collection, analysis and interpretation of data relevant to particular decisions. Philips does not ignore the price-level problem in his paper, but concludes that even a severe inflation or deflation would not necessitate eliminating unreal gains or losses from income statements. He also states that his suggested accretion concept eliminates the bunching effect of realizing periodic accretion gains all at one time, as is presently done.

The conventional approach to teaching the preparation of the application of funds statement calls for the use of a columnar worksheet. Included in a worksheet of this nature are comparative balance sheets, the computed monetary changes in the individual statement items, a number of working paper adjustments and finally, extended figures representing funds applied and provided and working capital increases and decreases. The purpose of the worksheet is, of course, to facilitate the preparation of the funds flow statement. It is not an end in itself, but merely the means to produce the finished statement. After several years of employing the worksheet technique, the writer became convinced that there must be a more effective method of introducing the student to the preparation of the funds flow statement. One disturbing aspect of the usual textbook approach to such preparation is the excessive amount of time consumed in completing the worksheet, i.e., in entering the comparative balance sheets, in computing and listing and balancing the net changes therein, in recording all the necessary adjustments and finally, in extending the net changes, as adjusted, to the appropriate statement columns.

The problem of properly accounting for discount is of increasing importance in the finance field. Historically, it has been of major concern to sales finance companies. Consumer finance companies have not had to deal with it to any significant degree because their loans traditionally have been on a "per cent per month of the unpaid balance" method with interest income computed on each loan account each month. In an effort to reduce costs, however, the consumer finance companies have discovered the economies of "precomputation" of charges, i.e., of including their charges in the face of the notes their customers sign. These companies now share the problem of taking into income the discount at which they purchase their installment paper. The switch to "precomp" (discounted notes) has not been universal. The principal braking action on the movement has been the detailed and sometimes archaic and straight-jacketing state laws and regulations under which these companies operate. Many of these laws have been based on the supposition that the interests of those who utilize the services of the consumer finance companies are better "protected" if the exact number of dollars and cents charged for interest is spotlighted each month.

Reviews the book "Security Analysis: Principles and Technique," 4th ed., by Benjamin Graham, David L. Dodd and Sidney Cottle.