The article reports on the basis of accounting theory. In 1966, after two years work, a committee of the American Accounting Association issued "A Statement of Basic Accounting Theory." Undoubtedly, the most startling recommendations were the sanctioning of current costs and the advocacy of two column (historical and current) reports. To this member of the committee, however, even more startling was that the near unanimous agreement on the recommendations was arrived at by following two very divergent paths originating from two very dissimilar basic concepts about accounting. The "Value" school within the committee, or as they would probably prefer to be termed the "User need" school, assumed that users' needs are known and sufficiently well specified so that accounting theory can deductively arrive at and produce optimal input values for used and useful decision models. Most of the value theorists visualize accounting's purpose as producing optimum income and capital value or values. Proponents of the "Events" theory suggest that the purpose of accounting is to provide information about relevant economic events that might be useful in a variety of possible decision models. They see the function of accounting at one level removed in the decision-making process.

One of the recurrent problems faced by accountants is to convince consumers of accounting data that depreciation expense is not a source of funds. The method in this article represents a rather complex and formalistic attempt to drive home an obvious point, but such a system of definitions seems in order, since, unless the author's experience has been unique, it appears that the absurdity of funds provided by depreciation expense has not always been self-evident.

George H. Sorter, Martin S. Gans, Opportunities and Implications of the Report on Objectives of Financial Statements, Journal of Accounting Research, Vol. 12, Studies on Financial Accounting Objectives: 1974 (1974), pp. 1-12

This article comments on obsolescence accounting the background of the article titled "Conclusion of the Atlas Plywood Story," the appeared in the November 1958 issue of the "Journal of Accountancy." The following definitions of obsolescence are found in accounting literature: "This term obsolescence is usually defined broadly to embrace the entire effect of the progress of invention and technical improvement." And "obsolescence in the narrow sense represents the effect of inventions and technical developments upon plant assets in use." Here an asset is considered totally obsolete when its replacement is dictated by economic considerations. Partially obsolete is the state that exists when a replacement for an existing owned asset is made available, but economic analysis does not dictate replacement. That is, the inferiorities of the old asset in relation to the new are not material enough to war-rant the outlay for the new. The effects of technology may either be predictable or unpredictable at the time of asset acquisition. Predictable effects of technological change give rise to what is termed ordinary obsolescence; unpredictable change results in extraordinary obsolescence.

Reviews the book "Accounting Theory," by Eldon S. Hendriksen.

The article presents an evaluation of some criticisms of relevant costing. In the October 1963 issue of the journal The Accounting Review, professor William L. Ferrara described issues on relevant costing relatively dispassionately and isolated essential differences. Basically, Ferrara considered service potential as realizable value while researchers identify it as opportunity cost. Differences of opinion probably cannot be resolved by further discussion. The October 1963 Accounting Review also contains an article by Professor Phillip E. Fess. The first paper in the journal showed empirically that after an inventory build-up in a given year, sales in the following year are as likely to decrease as increase. Thus, researchers have some empirical evidence for questioning the additional benefit of utilizing fixed factors to increase inventory. Researchers take the position that relevant costing is appropriate for both long-run and short-run reporting. The primary goal of relevant costing is neither maximization nor minimization of income. Its primary goal is to describe the economic impact of business events.

Reviews the book "A Theory of Accounting to Investors," by George J. Staubus.

Some of the most controversial areas in accounting, direct costing, selection of inventory valuation methods, lower of cost or market, capitalization of research and other non-manufacturing costs-revolve around a central problem that permeates theory and practice. It is the asset versus expense problem that must be resolved on a most fundamental level before hoping to find answers to specific accounting controversies. In this article the problem is defined and the assumptions, that have been made by accountants in dealing with this problem are examined. Further assumptions are compared and evaluated in detail. The controversial issues in accounting have led one to quest for a workable assumption about asset valuation that will bring convincing and universally applicable answers to the problem of asset expiration. One believe that the relevant costing approach is more likely to result in a valid application to accounting practice of the basic accounting concepts. Conventional accounting rules are too often preoccupied with physical form instead of economic substance. The implementation of relevant costing which often result in expensing certain costs that are conventionally capitalized and capitalizing certain costs that are conventionally expensed.

This article examines the suitability of variable costing for external reports. Variable costing is the inventory costing method which applies only variable production costs to product; under this method fixed factory overhead is not assigned to product. Typically variable production costs are direct material costs, direct labor costs, and variable overhead costs. Variable costing differs from conventional costing, sometimes called absorption costing, because fixed factory overhead is treated as a period cost rather than as a product cost. If a given cost has no influence on future operations, it is irrelevant and not helpful for decision-making. Therefore, assets should consist only of relevant costs, costs that will influence future results. If costs will not have an impact on future results, they have no service potential because they cannot affect future cost incurrence. Proponents of conventional costing maintain that income is greater when production exceeds sales than when production is at the same level as sales, because fixed facilities are better utilized and render more benefit in the form of inventories that will bring future revenue.

Opportunity Costs, Investment choice