Knowledge that Transforms

Reviews the books "Public Utility Valuation," by Williard J. Graham and "Depreciation, A Review of Legal and Accounting Problems."

Abstract The data to be presented will, first, give information concerning the trend of profits in the steel industry and, second, information concerning the manner in which profits vary with changes in the size of the corporations in which production is carried on. Two conclusions of general import will be brought out, one of which indicates that profits in the steel industry, the trend of which has been downward, have been moderate, the other of which points to the conclusion that the optimum size of a corporation is a function of the total economic situation, that is, it is a variable. The point of departure will in each instance be a brief reference to some accredited opinion. The data in the first section of the paper which deals with the trend of profits, is that of the United States Steel Corp. The second section considers the way in which rationality may be given to the belief that large industrial units are productive of lower production costs, when at the same time it is acknowledged that many relatively small firms report higher rates of earnings.

Reviews the book "Delaware Laws Affecting Business Corporations Annotated," edited by John Briggs and Stewart Lynch.

Abstract The purpose of this paper is to convey some idea of the relationship of the public accountant to local government accounting, and not to attempt herein to lay down any rules for the accounting procedure of local government. Remarks made by the author will apply to the smaller divisions of government and will not embrace the accounts of the Federal Government, states or the larger cities. Very likely the smaller units merit your attention to a greater extent since there are departments functioning to some degree for the auditing of the accounts of at least many of the bureaus of the Federal Government, the states and larger cities. However, it cannot be said that the public accountant may be of no service to the larger units of government, since his worth along these lines has been repeatedly demonstrated. The principal problem facing us today is not to effect a realization of the importance of governmental accounting in the opinion of public accountants, or the existing opportunities for service, especially to those who practice in the municipal field, but to stimulate an appreciation in the minds of the leaders and taxpayers of municipalities of the services which the public accountants are capable of rendering.

Reviews the book "Contemporary Banking," by H. Parker Willis, John M. Chapman, and Ralph W. Robey.

Abstract The article focuses on asset valuation in dividend decisions. The law is greatly concerned with keeping intact the amount of capital contributed by stockholders so that most of the general corporation statutes prohibit the payment of dividends from that contribution. This limits the source of such corporate distributions to surplus, which is the excess of the assets over liabilities and capital. In order to determine whether or not a corporation has a surplus, it is necessary to value the assets so that a comparison may be made with the total of the liabilities and the capital stock. The paper reviews the Great Britain and the U.S. dividend decisions involving asset valuation with the object of learning what assets are recognized and how they are valued by the courts when they compute the amount of surplus available for dividend purposes. In the valuation of corporate assets, money due but not actually received may be considered if there is no reasonable question of payment. Among the receivables recognized in the dividend decisions are accounts, notes, overdrafts, loans, bonds and guaranties.

Reviews two books on department stores. "Performance of Department Stores: 1933," vol. 6, by Edgar H. Gault; "Operating Results of Department and Specialty Stores in 1933," by Carl N. Schmalz.

Abstract Under the spell of rumored drastic regulations of the federal Securities and Exchange Commission, professional accountants are exhibiting a bad case of nerves. Many damage suits against leading firms of practitioners are already in courts and reports of more and larger suits are rife. Attorneys, preparing hastily conceived opinions and having insufficient knowledge of traditions and conventions of the profession, are emphasizing to its members terrors of the strike-suit racket. And, what is worse still in an emergency like the present, the almost universal dependence of accountants on the views of others offers convincing evidence that the profession is either unwilling or incapable of doing any straightforward thinking on its own behalf. To instructors in accounting, this condition of affairs should offer a challenge. Now, more than ever, the voice of enlightened opinion within the profession is needed. For years it has failed to see problems before it, problems for the complexity of which it alone has been responsible. Years of uninterrupted prosperity for large national firms, with the control of the profession as a natural by-product of their growth, have built up a complacency and sense of security which are now being rudely shaken.

Abstract The primary purpose of accounting is to measure income, and income is the difference between cost and revenue. It follows that the valuation basis for assets which represent future expenses should be actual cost. When unrecovered costs which are also deferred charges to future operations are set up on the books at appraised values, either higher or lower than actual cost, expense in subsequent accounting periods until such unrecovered costs have been properly charged against revenues will reflect to a certain extent fictitious amounts rather than actual cost. This applies to inventories, when based on the popular cost or market formula, and to buildings, equipment, and intangible plant assets, such as patents. In short, it is not conservative to write down the balance sheet valuations of depreciable and amortizable assets below bonafide cost inasmuch as this results in showing a portion of future expense, depreciation and amortization, at less than actual cost, thereby inflating profits.

Reviews the book "Budgetkontrolle in Industriellen Unternehmungen," by Heinz Ludwig.