The article discusses accounting for intangible assets. Intangible assets are generally grouped into two classes: those subject to amortization and those that are not. Practically all of the intangible items are subject to amortization with the exception of goodwill, trade names and trademarks. At the time of acquisition, the valuation of intangible assets is based on actual cost, either cash or equivalent value. After original cost has been established on the books, the intangible items are valued at cost less amortization, provided the class of intangible property is subject thereto. Where a right or privilege is purchased for cash, no one will object to the listing of that intangible item in the accounts of the company at its purchase price. Also if legal fees, models, drawings, development expenses and defense costs under a litigation proceeding are expended in order to acquire, develop, or protect an asset of this nature, the total expenditure can be capitalized as the cost of the asset. When intangible assets are not subject to amortization, yet they have been paid for and the values duly recorded, the question arises as to what shall be done with these amounts as the years go by.

Business management must establish policies to distinguish between capital and revenue expenditures in order to maintain and successfully operate an accounting system, which provides for the classification and control of depreciable fixed assets. Certain standards must be devised by accounting or engineering department in order to separate capital from expense items. The adoption of such policies and standards is more important now than ever before because of management problems involved in fulfilling defense contracts. Accurate costs have to be determined whether or not the type of governmental supply contract is described as a fixed-price, cost-plus-a-fixed-fee, or cost-plus-a-percentage-of-cost contract. Emergency facilities, including land, buildings, machinery and equipment, used for the purpose of completing a defense contract can be amortized over a period of 60 months if certain government regulations and requirements ate followed. Therefore, it becomes necessary for the management to distinguish carefully between costs coming under a supply contract and costs involved in capital expansion.

The article focuses on accounting for appraisals. If accounting records have been properly established and maintained on the basis of original cost, appraisal values should not as a general rule be used for operating purposes. Any basis other than original cost reflects a condition of values at a particular time and subsequent price fluctuations might so alter the revaluation amounts that they would no more depict the present values at some future time than would the original cost figures. During periods of economic stress, many organizations are forced by conditions beyond their control to alter the principle in order to decrease their operating costs. Write-downs are necessary to account for price changes, extraordinary obsolescence and non-utility or abandonment of the property. Appraisals are made and adjustments accounting for the replacement values are recorded on books with the thought that the price level, at the time books are adjusted, will remain about the same for a long period of time.

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.

A study of recent accounting literature discloses a very limited use of ratios and percentages to determine the effect of changes in costs and output on the final unit cost. Most of the literature, especially in the case of budget forecasting, approaches the problem by showing the changes in costs and output in terms of absolute amounts. For this article the problem and solution method is believed to be the most succinct manner for presenting this material. The first problem will show the effect on unit cost of various changes in total cost and unit output, the second will deal specifically with the determination of unit meal cost when changes are contemplated in total meal costs and number of meals served, and the third will show the unit output necessary to cover increased costs of production if unit cost is to remain the same. In all these problems, unit costs will vary in inverse proportion to output. Cost and output relationships can be measured by percentages and ratios. The article presents a formulae, which can be used as an expedient device to determine the effect of variations in cost and output relationships.