Abstract This article discusses the basic concepts of depreciation. The fundamental facts of depreciation-- the exhaustion of capital investment due to the physical or functional exhaustion of service capacity and the necessity of recovering capital investment before any profit on a venture could be claimed-have not always been understood by those individuals who regularly engaged in business undertakings. The book "The Elements of Book-keeping," by P. Kelly, published in year 1838, illustrates the inventory method of balancing the fixed asset. The 13th Annual Report of the Boston & Providence Railroad Corporation, describes a tardy recognition of accumulated depreciation, the depreciation from January 1, 1834 to December 31, 1844 being recorded in 1844. During the period, 1849-1867, a considerable amount of experimentation with methods of presenting depreciation data was evident. In the annual report of 1853, figures were inserted in the section headed "Estimated Depreciation beyond the Renewals' and deducted from surplus.

Abstract A more complete survey of legal opinion on the subject of corporate dividends indicates that while certain judges may be incompletely trained in the theory of accounts, there are few instances in which a clearly presented problem, upon the solution of which accountants themselves could agree, would be decided in a way which would violate the accounting principles involved in the case. Many of the apparently meaningless and erroneous statements are merely dicta, and much of the difficulty is due to a misuse of accounting terms rather than a confusion of ideas. Nevertheless, in order to avoid ambiguity and misunderstanding, it must be clearly understood that the terms "profit" and "surplus" do not refer to a fund of available cash waiting to be spent, that there is no relationship between profits or surplus and any particular asset so that an overdraft at the bank and the existence of a large surplus are not incompatible, that profits are usually "invested" before they are even determined, that surplus cannot be reduced by paying debts or purchasing assets, or, in other words, that profits and surplus are merely terms which refer to the excess of assets in general over the sum of the formal capital stock and the liabilities to outside creditors.

Abstract Depreciation may be defined as that inevitable disappearance of the value of certain items of physical property which can normally be expected in the course of the conduct of business enterprises. The reason why the unit is no longer of value to the owner may be actual physical deterioration, or it may be that changes in demand for the product of a machine or technical improvements of one kind or another have made the unit obsolete. The accounting problem in connection with depreciation, is to record in some way the amount of depreciation which should be taken in each accounting period and this amount in turn may have to be spread over several products or services which were produced or were in process during the period. Much of the disagreement in the discussions of depreciation reserves has undoubtedly been partially caused by the use of only one reserve for depreciation for the entire property instead of one reserve for each type of property. A great deal of confusion concerning depreciation arises from the interpretation of the depreciation policy as a means of providing for or facilitating the making of replacements.

Abstract The U.S. Interstate Commerce Commission was specifically instructed to consider depreciation in making the valuation of the railroads of the country since cost of reproduction less depreciation was one of the three basic values to be determined and considered in setting final values upon the railroad properties. A study of the published valuation reports indicates that a very definite and comprehensive policy has been adopted which has been applied strictly and rigidly to all cases in spite of vigorous protests of the carriers. In the first published valuation case the commission stated that depreciation has been treated as covering number of units of capacity for service as compared with those existing in the same elements when Installed; and upon ascertaining what part of the remaining capacity for service remains, depreciation which has already accrued ii subtracted from the cost of reproduction new and the remainder given as cost of reproduction less depreciation, due consideration being given to existing salvage or scrap value. Depreciation is not taken merely as the equivalent of deferred maintenance or loss of service efficiency.

Reviews the book "Accounting Systems--Their Design and Installation," by William Rodney Thompson.

Abstract This article focuses on the use of costs in setting up selling prices. In almost every presentation of the advantages and purposes of a cost accounting system the possibility of using costs as the basis for fixing selling prices is given special attention. In so far as the individual producer can not set his own selling prices he needs a better cost system and more detailed analyses of cost data in order to compete successfully in the market. Price determination is a complex process with many interrelating forces and proceeding largely by trial and error methods. Even the monopolist, setting prices at will in order to get the highest possible return, must know his costs in order to compare the net return from different prices. Cost, then, can sometimes be used as a direct basis from setting selling prices, is often one of the important factors in the determination of provisional selling prices, but many times the problem of the individual producer is to keep his costs below a selling price determined by general market forces and conditions.

Reviews the book "Tax Court Digest," edited by Lois G. Moore.

Abstract Reviews the book "Seidman's Legislative History of Excess Profits Tax Laws 1946-1947," by J.S.Seidman.