The 1939 Income-Tax Act extends to all taxpayers the privilege of evaluating the final inventory on a first-in, last-out basis. The corollary permits the cost of goods sold to be determined in accordance with the assumption that goods purchased last are sold first. Official recognition is thus given to an additional method of evaluating inventory. The new method does not solve any of the technical difficulties encountered in pricing the goods on hand at the close of the period, since the procedure to be followed is merely the reverse of that called for by the last-in, last-out method. It therefore contributes nothing in the direction of simplicity. Effective support, if such exists, rests in some supposedly desired resultant in either the balance sheet or the income statement. It is probable that a predetermined end motivates the advocates of the first-in, last-out method: the desire to influence managerial decisions through a restatement of profits. That such a purpose is proper motivation for accounting procedure is questionable. Certainly it deviates from the goal of historical accounting; namely, the recording and presentation of facts.

Time was when accountants looked upon the balance sheet as a presentation of the current financial position of a business enterprise. They thought of the left side of the statement, when it was presented in account form, as a summary of the assets of the enterprise. It is true that they avoided the inclusion of intangibles whenever possible but they made a virtue of that just as banking institutions made a virtue of writing their buildings and physical equipment down to one dollar. In the taking of inventories the accountant insisted upon a lower-of-cost-and-market valuation and he made a virtue of that too. In an earlier period of business enterprise, balance sheets prepared upon the basis of traditional principles and techniques did show assets and liabilities and proprietorship within the limits of accuracy demanded by the business management of that time. This general character of the valuation process is not peculiar to economic valuation. The present article is not the place for a general discourse on value but it may be said in passing that all valuation involves a reconciliation, integration or adjustment of different interests.