Knowledge that Transforms

Abstract This overview was prepared for students enrolled in the Graduate Seminar in Accounting Theory at Tulane University, New Orleans, Louisiana, in the Fall semester of 1964. It includes, (1) a point of view on the uniformity problem, (2) the course of research recommended to the seminar participants, and (3) an annotated bibliography arranged chronologically. Perhaps other instructors will find it helpful in discussing this urgent and complex problem. During the past few years, there has been a resurging interest in promulgating a well-conceived, authoritative set of accounting principles for business enterprises. The American Institute's current research program and the establishment of the U.S. Accounting Principles Board are promising steps toward the eventual realization of this worthy and, therefore, elusive goal. The stated purpose of the Institute's research program is to determine appropriate practice and to narrow the areas of difference and inconsistency in practice. Indeed, it would be difficult for any accountant to deny the merits of this objective. However, some very serious obstacles deter its effective implementation.

Reviews the book "Auditing: Principles and Procedures," by Arthur W. Holmes.

Abstract The article discusses the traditional approach to dollar-value last in, first out (LIFO) accounting which involves the return of current year's inventory to the base year price-level as the first step in determining the incremental increase of the inventory at base year price. This increase is then converted to current-year price by the use of the current price level index. This approach requires the use of different year price levels. A method that has proved quite successful in the classroom involves a constant forwarding of price-levels by updating the beginning inventory to the end of the year price level. This method eliminates the need for division in the year of the first incremental increase. This incremental increase is added to the beginning inventory before updating to yield the ending dollar-value LIFO inventory. The return to base year price level is avoided, thus only a forward approach is used. This method cannot be used in cases of incremental decreases in inventory. Such a situation would immediately be detected when the beginning inventory's updated cost exceeds the ending inventory.

Reviews the book "Dynamic Accounting," by Eugen Schmalenbach.

Reviews the book "Managerial Accounting," by James H. Rossell and William W. Frasure.

Reviews the book "Professional Accounting in 25 Countries."

Abstract The article attempts to clarify the distinction between monetary and non-monetary items by focusing on the monetary definitions used in the Accounting Research Study No. 6, which classifies prepayments or deferred charges as monetary items because they are advance payments on liabilities which will accrue as time passes or as services are rendered. Monetary assets represent cash and fixed-money claims that are, relatively speaking, uncommitted funds. The service potential derived from monetary assets pertains to funds that are potentially available to acquire real assets. In contrast to cash and fixed-money claims, nonmonetary or real assets are measured by a past commitment of funds. The distinction means that deferred charges and credits should be excluded from the calculation of the real gain or loss on the net monetary position. Instead, the deferred charges and credits are classified as real assets, and should be adjusted by the use of a general price-level index into current dollars. In this manner homogeneous revenues and expenses are matched in terms of equivalent dollars.

Abstract The Accounting Principles Board of the organization American Institute of Certified Public Accountants issued "Opinion No. 2," in December, 1962, which supported the thesis that the investment credit should be reflected in the net income of the firm over the productive life of the acquired property. The effect of the amendment is to provide an additional item to be used in the determination of the tax liability to the federal government. No longer does the tax law specify an alternative method of allocating the cost of plant and equipment in the determination of taxable income. The full cost of the asset is now deductible, in accordance with acceptable depreciation methods, in arriving at taxable income as it is in the determination of business income. In the jargon of the tax allocationist the investment credit is now a difference of specification rather than, as under the previous law, a combination of a difference of timing and a difference of specification. There is therefore no longer any deferral of the payment. The investment credit results in a permanent reduction barring unforeseen changes in the law in the total tax bill of the enterprise.

Abstract The article focuses on the problem of teaching consolidated statements. One of the difficulties of teaching consolidated statements has been the adjustments to be made for intercompany profit in inventory. This problem has been greater where minority interests were involved. The problem of teaching the elimination of intercompany profits is still complicated by the fact that the eliminations required are not the same if made for consolidated balance sheet statements only, as when made for consolidated income statements and balance sheets. Further differences are found in eliminations when the investment is carried on a cost basis as contrasted with the investment carried on an equity basis. The illustration used by the author is one for adjustments or eliminations where both consolidated balance sheets and income statements are involved, since this is assumed to be more difficult than the adjustments or eliminations when only balance sheets are to be consolidated. The author has found that an illustration of this type, where the varying eliminations can be seen in one place, gives the student a better understanding of the problem than piecemeal consideration of the problem.

Reviews the book "A Critical Evaluation of Income Measurement by Products and Periods," by William J. Schrader.