Knowledge that Transforms

The article discusses various issues related to valuation for profit determination. For many years controversy has centered upon the question: "Should depreciated cost or should some form of present value of fixed assets be reflected in the balance sheets of business organizations?" Many cases involving valuation have been before the courts. Of these, the leading accounting and financial cases pertain to rate-fixing, the recapture clause, taxation, and transactions between corporations and their promoters, inter alia. Few cases relate to the question and then only indirectly. The opinions of the United States Securities and Exchange Commission are more helpful. From the investor's viewpoint the profit-and-loss statement is of primary interest in that it furnishes information necessary to measure the success of management in accomplishing the fundamental purpose of a business venture, making profits, and gives some indication of earning capacity and future prospects. Profit determination over the span of an enterprise's life is a relatively simple matter.

Reviews the book "Budget Principles and Procedure," by John R. Bartizal.

Reviews the book "State Supervision of Local Budgeting," by Wylie Kilpatrick.

The article focuses on cost accounting in Germany. The author has presented the defined principles and objectives of German accounting, together with a uniform accounting plan in one of his articles. The Board of Industrial Economy has continued its work with regard to improvement in all fields of accounting. The purpose of these "General Principles of Cost Accounting" is to assist in achieving increased economy in production, for it is believed that a cost-accounting system based upon these principles will lead to a correct ascertainment and clear conception of all costs involved. Such a system will promote cost supervision, estimate, price determination and cost comparison within the plant or within the industrial group. All these steps will contribute to the final goal: increased economy and greater performance in business and industry. The performance of a business is definitely determined by its costs. The influence, which a profound knowledge of costs will have upon the formation of prices within an enterprise must further-more result in cleaner conduct among competitors.

The article focuses on theories and practices of accounting. For two decades, accounting processes of the Federal government have drifted along without leadership and with no central guiding principle. Papers, which appeared in the March 1940 issue of journal, The Accounting Review, amply indicated the dissatisfaction of those who have carefully investigated existing practices. There are many persons familiar with Federal accounting to whom the idea of following the commercial pattern is somewhat repugnant. Government is organized for service, not for profit. But costs are the same everywhere and government stands to gain if the well-developed notions of cost accountants can be adapted to the Federal picture. The balance sheet of a Federal department, commission, or other agency need not differ from that of a private corporation, except for the net worth section; yet a number of Federal establishments cannot produce a balance sheet, notwithstanding their ownership and use of various sorts of assets.

Reviews the book "Cost Accounting," by John G. Blocker.

Reviews the book "Public Finance," 2nd ed., by Alfred G. Buehler.

The article focuses on stock and other dividend as income. The question concerning types of stock dividends, which are income and types, which is not income has assumed importance chiefly in relation to Federal income taxation. Beginning with its decision in one case, the Supreme Court of the U.S. has laid down and applied a general rule for determining the taxability as income of any given type of stock dividend. This rule is frequently referred to as the "different interest" rule or test. It is not the primary purpose of the discussion to attempt an appraisal of the general soundness of the Supreme Court's position with reference to the taxability of stock dividends as income under the Sixteenth Amendment. The question of whether a specific type of stock dividend constitutes income to the recipient or not, is of interest apart from the taxation of income. It is a part of the general accounting problem of the proper determination of periodical income for general business purposes and also bears on the law with respect to dividend declarations. It is, therefore, proposed to examine the question mainly from general business point of view.

It may be said that accountants are not in accord as to the content and arrangement of funds statements. The form suggested here is an attempt to improve that situation. As indicated it is first necessary to decide what is wanted from the statement before a determination can be made on what to put into it. The point of view adopted in this article is that the statement of funds is in reality a statement of the values, which came into the current section of the balance sheet and what was done with these values. Changes in other sections of the balance sheet are brought into the statement only to the extent that they involved the working capital of the company. By showing the gross profit-and-loss figures which affect the net current assets, the statement is made more significant, and the awkward and confusing method of starting with the net profit and adding back depreciation and similar charges is avoided. To treat the net change in working capital simply as a difference between increases and decreases is much clearer than the treatment of the net change found in the balanced form of report. Finally, the heading of the statement should give the ordinary reader a good idea of what to expect in the body of the statement.

This paper deals with one class of property, which, under certain conditions, involves an important accounting problem. This special class, referred to as "idle equipment," comprises those assets becoming temporarily idle because operating capacity has fallen below estimated normal requirements. Idle equipment does not entail accounting treatment in the case of a plant using all of its fixed assets under normal circumstances or operating at full service capacity; manifestly there is no idle equipment. It is only when operations temporarily fall below normal capacity output that the problem of idle equipment arises. Idle equipment is not necessarily the result of obsolescence. The industry may be a stable one, the product new, and the equipment of the most recent and modern type; yet the plant may be operating at an exceptionally low capacity output. Idle equipment can be kept in first-class condition by constant trial, maintenance, and repair, and brought into use immediately whenever production returns to normal or full service capacity. Although the expense of maintenance of this nature can be capitalized, and later amortized when the equipment is brought into productive use, there still remains the problem of obsolescence.