Reviews the book "Recognition in Financial Statements: Underlying Concepts and Practical Conventions," by L. Todd Johnson and Reed K. Storey.

Reviews the book "Managerial Accounting," 2nd ed., by James H. Rossell and William W. Frasure.

This article discusses several means of achieving the weighting of the prices of all the commodities which are used to define the price index. In recent years, interest in price-level adjustments in accounting has increased and has become an important topic in instruction in accounting theory. Frequently, already existing price indexes will be employed in carrying out price level adjustments. Sometimes, however, construction of an index will be necessary. Any utilization of a price index should be accompanied by an understanding of the inherent characteristics of the formula which defines the index. Economic analyses may be a useful approach to this task. In particular, the proof demonstrated above may be useful in presenting these concepts in the classroom. The construction of a price index requires a weighting of the prices of all the commodities which are used to define the price index. But, for the same reason as in the case of the Paasche Index, this true index cannot be determined.

This article examines the existing ways of presenting sensitivity data, presents an approach based on the isoquant concept and illustrates the application of this approach in the case of the present-value model for capital investment analysis. Sensitivity analysis has long been recognized as a useful tool in the decision-making process. Since the information input into decision models is subject to measurement and estimation error, it is important to understand and take account of the effect of such error. This need poses a challenge for accounting in its role of providing input data to management. It is desirable that not only point estimates be provided, but also ranges of possible error and the effects of such error on the decision variable. This raises the problem of the analysis and presentation of sensitivity data. The isoquant concept was recommended as a useful device for communicating sensitivity data to management. Isoquants may be used, for example to illustrate the conditions which must occur for a project to break even; the permissible errors in the estimates of the variables will still allow the present value to be estimated within certain limits; or the variation in present value given a particular range of error. One or more of these may be of assistance to management in dealing with the question of how much effect errors of estimation will have. The probability of each error need not be specified in advance. Rather, if one observes from the isoquants that a particular kind of error would have a large effect, only then need there be concern with the likelihood of that error being realized. Hence, the isoquants serve to identify those estimates which are critical in the decision process. In short, the addition of sensitivity data adds a useful dimension to planning data reported to management.

Replacement cost, Rule 3-17, Inventories, Estimators of replacement costs

LIFO, FIFO, Accounting Ratios, Risk

Financial ratios, Descriptive power, Industry level, Macro outcomes

The article demonstrates that the current procedure of estimating asset life for depreciation purposes is inadequate and advocates the use of the entire probability distribution of asset life. After reviewing certain current depreciation procedure, it discusses the probability-life approach to depreciation and its implications for the inter-temporal allocation of depreciation expense. The effect of depreciation adjustment under both the traditional mean-life and probability-life approaches is analyzed. Criteria that can be used to choose between mean-life and probability-life are then discussed. Finally, consideration is given to the application of the probability-life concept to group depreciation and also to accelerate methods. The article also says that the choice of a depreciable life for an asset requires an estimate of the length of time that the asset will provide its services to the company. Since an uncertain future is being estimated, one is faced with the problem of estimating the probability distribution of the asset life.