Reviews the book "Provisions in CPA Laws & Regulations

One of the continuing unsolved problems of accounting is that of joint costs of production. Generations of accountants have struggled in the definitional morass of joint products, major products, co-products, minor products, by-products, and scrap, waste, spoiled or defective products. For their part, economists have been quick to point out that, in many cases, cost allocations to joint products are arbitrary and thus unjustified. Be that as it may, for a number of mundane reasons well known to accountants, such as the preparation of balance sheets and income statements, evaluation of inventories, preparation of tax returns and public regulation. Some allocations are required and must be made. It proposes to relate accounting to economic theory and in so doing to make a very limited advance on the problem. In a joint cost situation, one input serves to produce two or more products, these two or more outputs may issue from the production process either in fixed proportions or in variable proportions

The code and regulations concerning partnership activities are among the most complex laws and rules in the field of taxation. The article focuses on the effects of the U.S. Internal Revenue Code while discussing the importance of the tax effects to be considered during the formulation of original partnership agreements and later timely modification thereof which can eliminate some inequities that might arise among partners. An agreement should be arrived at among partners as to the treatment of certain aspects of contributed property. If the agreement is silent as to the depreciation of the contributed property, the depreciation would be treated as if the property had been purchased by the partnership. Cash payments in liquidation of a partner's interest in a partnership or to successors in interest of a deceased partner's interest can raise some tax consequences. A distinction in the tax law between payments in liquidation of a partner's interest in partnership property and other liquidating payments should be carefully considered before an agreement is reached between a retiring partner and the remaining partners of the partnership

The purpose of this article is not to discuss the arguments for or against the use of direct costing. It is instead to locus attention on some of the legal implications a company should keep in mind with respect to taxation, securities regulation, and antitrust and other legislation if it is considering the use of direct costing as an all purpose accounting technique. Advocates of direct costing maintain that it simplifies the interpretation of financial results and that it is particularly useful for profit planning, pricing decisions, and cost control. Opponents do not generally deny that the system has advantages, they are more concerned with its application to external reporting. The National Association of Accountants reported that seventeen of the fifty companies participating in a research study report used direct costing in preparing financial statements for stockholders. In none of these cases had auditors given a qualified opinion or taken exception to the practice. Apparently the CPAs performing the examination believe that the use of direct costing results in financial statements which present fairly both the financial positions of their clients as well as the results of operations for the periods under review