Reviews the book "Financial Accounting Theory I: Issues and Controversies," 2nd ed., edited by Stephen A. Zeff and Thomas F. Keller.

This article comments on the article "Implicit Factors in the Evaluation of Lease vs. Buy Alternatives," by Lanny G. Chasteen, published in the October 1973 issue of the journal "The Accounting Review." The implications of Chasteen's corollaries are valid and sound if the lease payment period is equal to the U.S. Internal Revenue Service (IRS)'s depreciation guideline life. If, however, the depreciation life for tax purposes differs from the lease period, it is possible to favor leasing over buying even though the implicit interest rate of the lease is greater than the rate at which the firm can borrow. For example, one should assume a potential lessee could lease an asset for $1000 a year for three years and purchase the asset for a nominal amount at the end of the lease period. It is assumed that the lease's implicit interest rate is 8%. An 8% implicit interest rate would mean that the potential lessee could directly purchase the asset for $2577. It is further assumed that the potential lessee can borrow at 6%, uses accelerated depreciation, and the IRS guidelines call for an 8-year depreciable life for this firm.

This article presents comments on an article describing a very useful algebraic teaching aid to explain the differences between the direct costing and full-absorption costing models, written by Don T. DeCoster and Kavasseri V. Ramanathan and published in the October 1973 issue of the journal "The Accounting Review." This assumption leads them to analyze a very special situation in which the overhead charged against profit under absorption costing is the volume variance rather than the more general situation in which the total overhead variance is charged against profit. it may be seen that the difference between the two income measures is the same as that developed by DeCoster and Ramanathan. The adjustment of the DeCoster and Ramanathan discussion for these two changes should be beneficial because students have frequently been introduced to budgets and variance analysis under full-absorption costing before variable costing is discussed.

The article reports that the effect of inflation on the value of the firm, in the case of monetary items, can be analyzed at three levels. First, the price-level increase gain or loss measures the real losses to income and principal based upon the change in the general level of prices. General price-level accounting methodology presently measures this effect, with exceptions as noted below. Second, the net holding gain or loss measures the net effect of holding monetary items, considering the price-level increase gain or loss and the absolute income or costs of the monetary items. The possibilities of normal gains and losses offsetting or magnifying price-level increase gains and losses make this second consideration important. The third consideration, that of anticipated price-level increases, affects the accuracy of the conclusions reached in the first two levels of analysis. The first two levels assume that inflation is unanticipated and thus ignore the fact that prior adjustments in return could compensate for the gains or losses as found in those analyses.

This article presents response from the author to the comments on his article "Behavioral Implications of Taxation," published in the October 1973 issue of the journal "The Accounting Review." It was argued that the author's article did not always maintain a clear distinction between ex ante and ex post research. This issue is basically a semantical difference. The author agrees that behavioral research can be ex ante and ex post. Many specific research methodologies incorporate both ex ante and ex post research. There is no way to know what are the best paths to follow as the body of knowledge is being developed. Tax analysis research would, of course, include both ex post and ex ante research. The 1973 AAA's Committee on Federal Income Taxes indicates that tax research consists of two types: tax compliance and planning research and tax analysis research. The first type refers simply to finding a competent and professional conclusion to a tax problem. It includes such subsets as tax return preparation or review, tax minimization and deferral, and practice before the U.S. Internal Revenue Service and the Tax Court. The second type of research goes beyond this fact-oriented research and focuses upon the data-gathering stage in the testing of tax hypotheses.

This article presents information on expectations and achievements in income theory. A major confusion concerning the relationship between ex ante present value and ex post concepts of income and asset valuation underlies much of the recent literature in income theory and asset valuation. Many claims have been made in favor of the present value concepts and measurements as providing the ideal accounting system which are not valid, and many criticisms of historical accounting which are based on the supposed merits of present value accounting are not sound. The case for the use of current value or replacement cost accounting is thought by many to rest on the merits of present value accounting whereas it really rests upon other grounds. The case for the dominant position of ex ante present value income rests on the needs of investors for information about future income prospects of a firm. Investors in business enterprises, i.e., owners, are interested in the prospects of future income from investments, and it is differences in these future prospects which determine the allocation of their investment funds.

This article presents information on a decision matrix which has been designed to assist accounting students to determine which factor is to be used in lower-of-cost or market valuations. The U.S. Committee on Accounting Procedure has said that a departure from the cost basis of assigning amounts to stock-in-trade inventory is required when the utility of any given inventory is not as great as the cost. Utility may be less than cost when the net realizable value of any given inventory, when reduced by an approximately normal profit margin, is an amount less than cost, however determined. The amount of loss to be recognized when such utility has been impaired is found by pricing inventory at lower-of-cost or market. The matrix is applicable only for conditions under which lower-of-cost or market decisions can be applied. That is, where net realizable value less normal profit margin equals or exceeds cost, lower-of-cost or market is not applicable and the decision matrix should not be consulted.

Reviews the book "Accounting for Research and Development Expenditures," by Oscar S. Gellein and Maurice S. Newman.

This article presents a comment on the study of the audit staff assignment problem in the U.S. The use of quantitative models in the solution of accounting problems has been criticized for their simplistic objective functions, e.g. maximize profit, minimize cost. Goal programming provides an obvious improvement for those problems previously solved via other linear optimizing models. One would expect it to replace linear programming formulations in a short time as it will accommodate each of the prior formulations with the added potential of multiple ranked goals.

Reviews the book "Audits of Colleges and Universities" by the AICPA COMMITTEE ON COLLEGE AND UNIVERSITY ACCOUNTING.