Knowledge that Transforms

The article discusses several issues related to accounting as a tool for economy in German business. With the start of European hostilities, innumerable questions concerning industries, commerce, raw materials, and economy of the belligerent nations were raised in the daily press. Of particular interest was Germany, which through the innovation of its "Four-Year" Plan, had set out some years before to place its national economy as much as possible on a basis of self-sufficiency. Stringent foreign exchange laws, rigid economy, strict control over capital and labor, barter-trade with other nations, and rationing of food articles have long been regarded as measures foreign to American trade, business, and national policies. It is the purpose of the author in this article to present the development of that phase in the German business world, which on the one hand has made such rapid and important progress, and, on the other hand, has been called upon to help in the struggle for greater economy and for the success of the Four-Year Plan.

Reviews the book "Corporate Financial Policy," by Harry G. Guthmann and Herbert E. Dougall.

Reviews the book "1940 Tax Diary and Manual."

Accountants are just beginning to develop a consciousness of some of the problems of obsolescence that are present in connection with the use of fixed assets. This article is limited to consideration of only one question, which arises, that of separate accrual. Depreciation in this article is used to describe only the physical factors, which contribute to the retirement of fixed assets from use. The term obsolescence describes the functional or intangible factors that cause the permanent abandonment of fixed assets. Fixed assets are considered to be obsolete if they go out of use before the end of their potential physical life, because of changing economic or technical conditions. Depreciation, then, implies the gradual expiration or consumption of productive power, while obsolescence implies the abandonment of unused potential productive power. The difficulties of separating physical depreciation and obsolescence, the two dissimilar things may be too great to attempt at the present time, but accountants should recognize that they are different in nature, and that considerable progress in predicting obsolescence has been made in the past and may be expected to be made in the future.

Reviews the book "Trends in Rural Retailing in Illinois 1926 to 1938," by Robert V. Mitchell.

Reviews the book "Government and Business," by Ford P. Hall.

The article presents a comment on a previous article that appeared in the journal The Accounting Review. The presentation of an author's paper on obsolescence at Philadelphia, Pennsylvania last winter and its publication in the June issue of the journal The Accounting Review represent long overdue attention to this important subject by accountants. It is to be hoped that this paper is the beginning of really adequate attention to this subject, and that the author's other writings will shortly see the light of day in published form. At first glance the proposal that obsolescence should be accrued separately from the physical factors in what accountants commonly lump together under the head of "depreciation" is likely to arouse no great enthusiasm in the mind of the orthodox accountant. In spite of the rather gloomy picture of the present status of depreciation accounting presented in the article, or perhaps because of it, the impression should not be created that improvements cannot be expected. Quite the contrary is true. Further inquiries into the causes of depreciation in an attempt to measure their relative importance are fully justified. The result will be improved determination of depreciation rates and a sounder approach to the problems of managerial control.

The article focuses on various problems, which were prepared by the Board of Examiners of the American Institute of Certified Public Accountants (CPA) and were presented as the second half of the May 1940 CPA examination in accounting practice. The examinee was given six hours to solve problems 1, 2, 3 and either problem 4 or 5. Problems were weighted as follows: problem 1, 10 points; problem 2, 25 points; problem 3, 30 points; problems 4 and 5, 33 points each. In one question, details of two hypothetical companies namely A and B, which are entirely owned and controlled by same interests, are presented. The company A's condensed balanced-sheet for a particular year is presented in the article. In another question, another hypothetical company, namely, S.S. Manufacturing Co. is discussed, which completed construction of its plant for the manufacture of lawn mowers on January 1, 1939 and commenced manufacturing on January 13, 1939. The examinee is required to restate the actual and standard production costs for the thirty-day operating period and show the estimated loss by theft of the 500 lawn mowers.

Development of the controllership functions, and position, as it is found today in American business, undoubtedly can be traced to the official Comptroller in Government posts, performing duties prescribed by law, in an effort to see to it that only appropriated funds were disbursed and for the purpose intended. This Government function came over into business as business units grew in size. Consequently, the position of "Comptroller" was found first in large concerns, such as railroads, mines, and large manufacturing establishments, many of which have had that office for forty to fifty years. A good controller is a service man, and must be a good salesman to sell the services of his department to the heads of the various operating departments. The most important function of a controller is that of interpretation of financial statements and other figures to the executives. It is amazing how some executives shun figures, especially a large sheet of figures. Therefore, it is frequently necessary to put important financial facts in story form with a punch to it.

Reviews the book "Business Cycles and Forecasting," by Elmer C. Bratt.