Knowledge that Transforms

The ability and willingness of wholesalers and retailers to buy, stock, sell, and deliver the product of a manufacturer has a significant and obvious effect on the profit of every firm that is involved in the transactions. Equally significant, but perhaps less obvious, is the view that decisions frequently must be made by the chief marketing executive in a manufacturing firm which are strategic to either modifying or adapting to other firms in the channel of distribution. Expressed differently, this suggests that the marketing executive often views the route taken by his firm's products as a variable which is subject to management in much the same way as is a sales force, an advertising budget, or the size of an inventory. There are two types of financial analysis or accounting service which are not within the scope of discussion here. First, sales and marketing cost analysis are valuable aids to marketing strategy but have been given considerable literary treatment by other writers. Accountants long have recognized that the net profit returned by two different channels may differ substantially, and they often present this information to the marketing executive. Second, a few manufacturers have helped their retail customers establish accounting systems and procedures as a "good-will" service.

Reviews the book "Inventories--A Guide To Their Control, Costing and Effect Upon Income Taxes," by Raymond A. Hoffman.

One major weakness of the typical term paper, even if it is to be based on extensive library research, is that the writer can choose to be irresponsible. When reporting on an accounting controversy, e.g., LIFO-FIFO, price-Level changes, direct costing, the student will usually limit his analysis to an exposition and surface evaluation of competing arguments. He may include arguments of specious merit in the hope that his instructor will not react adversely, for he is only a student. It is this expectation of the instructor's benignancy, often forthcoming, that invites irresponsibility. Motivated by the desire to overcome this irresponsible approach to term reports as well as by the wish to generate active and informed class discussion on an important accounting problem, this writer added a class debate to course requirements in the three-hour, third-semester accounting course coming in the junior year. In sum, the endeavor to overcome one dilemma led to another. But other classroom devices also have weaknesses. For example, the assignment of specific topics to individual students who are to report to the entire class, does not insure that anyone save the reporter will have done any real research and thinking prior to the meeting.

When representatives of labor unions meet with employers to negotiate employment contracts, the discussions often include a consideration of pension plans. More than 20 million workers are now covered by some 25,000 private pension plans, and theft number is constantly increasing. Accounting Research Bulletin 47 defined a pension plan as, "a formal arrangement for employee retirement benefits, whether established unilaterally or through negotiation, by which commitments, specific or implied, have been made which can be used as the basis for estimating costs. The problems which arise in estimating these costs and charging them to income of the appropriate accounting periods include a consideration of both the so-called "past service costs" and the cost of current services. The past service cost is a problem only at the inception of a pension arrangement, yet has been given considerable attention by accountants. However, the equally important issue of how to deal with current service costs has been relatively neglected. As a result, these costs are often treated improperly in the accounts, particularly in the case of non-funded plans.

Reviews the book "Management Models and Industrial Applications of Linear Programming," by A. Charnes and W.W. Cooper.

The analysis in this article applies in general to the investment credit. This tax measure was introduced even more emphatically than the guidelines to stimulate investment. Accounting requirements, which would reduce the attractiveness or the apparent attractiveness of the credit, would run counter to public policy. Companies will get the investment credit if they qualify; it is not a matter of choice; in this respect the credit differs from the guidelines. From the point of view of the public interest, a part of the problem is whether one or another method of reporting would be more effective in demonstrating to management the benefits from the credit. If the tax savings had to be set off in tax deferral accounts the near-money gains of the investment credit might seem smaller and the stimulus to investment somewhat reduced. The tax advantage for a profitable railroad comes when the qualifying investment is made. Of course, complications will arise in some cases. There are contingencies, which can lead to the loss of some of the credit received on investments in prior years. And there will be carryovers of unused credits. The effect of a credit received in one year on the tax-worth of depreciation deductions in the future will present difficult, often insuperable, valuation problems.

This paper deals particularly with the acquisitiveness of one corporation, the bitumen-based products developer Flintkote Co. Flintkote was chosen because its history, especially the last four years, shows rapid change with numerous business combinations. These business combinations illustrate clearly the application of the accounting procedures of "pooling" and "purchasing" and offer an opportunity to study the effects arising from their use. The fact that accounts are stated in consolidation on a pooled or purchased basis is usually put into the first footnote to the consolidated balance sheet under a statement of consolidating principles. Flintkote has been an active company in the use of the pooling and purchasing concepts in business combinations. A business combination involves the mutual transfer of rights by stockholders of one corporation with those of another corporation. The accounting profession attempts to give reasonable expression to what has occurred. In this article the author comments on various aspects of the accounting principles pooling and purchasing.

Tax allocation procedures used today produce inconsistent treatment on the balance sheet. When the asset's accounting basis is greater than the tax basis as the result of differences in timing, a credit must be carried on the balance-sheet. This credit has variously taken the form of a liability, a reduction in a fixed asset , a reduction in a deferred charge, or even an allocation of retained earnings. As previously mentioned, the major difference has been that due to depreciation. Here, the general practice has been to show the resulting credit as a non-current liability. To many accountants, this treatment is a distortion of the facts. At the moment of liability recognition for accounting purposes, no liability seems to them to exist. The liability may never come into existence, or its amount may be greater or less than the amount originally booked. An acceptable, but not widely followed, alternative has been to credit the accumulated depreciation rather than the liability account in these circumstances.

Reviews the book "Accounting Trends and Techniques."

A survey of consolidated financial statement practices conducted by the American Institute of Certified Public Accountants in the mid-fifties pointed up the lack of, and consequently the need for, uniformity in consolidation practices. In an apparent attempt to get some degree of uniformity in the consolidation area the Institute's Committee on Accounting Procedure in the late fifties issued Accounting Research Bulletin No. 51. While only time will tell whether the recommendations of the Committee are widely adopted in practice, they have already had, in this writer's opinion, far-reaching effects upon the teaching of consolidations. The Bulletin has had and will undoubtedly continue to have a tremendous influence on teaching in such areas as what to consolidate, when to consolidate, and how to consolidate. Its greatest impact, however, from the teaching standpoint has probably been felt in the area of intercompany profit transactions.