The article focuses on relationship between depreciation of assets and profit determination. In seeking guidance as to appropriate wage, price and allocation, and taxation policies, earnings reports in terms of individual firms, industries, and all business have taken an undisputed position of importance. There are widespread current expressions that the profit figures shown in these statements are inflated or overstated. The holders of this view contend that basing depreciation charges on original cost in periods of marked change in prices contributes to a distortion of the profits figure. There is general agreement among economists and accountants that business income is measured by the excess of revenues over the cost of producing those revenues. One of the costs of producing revenues is, of course, the gradual consumption of the service-rendering ability of capital assets that is described as depreciation. The central purpose of depreciation accounting is to allocate the cost of these long lasting assets to the periods of use in a reasonable and orderly fashion.

Accounting for reserves has received considerable authoritative comment in the last few years. The Reserve for Sinking Fund is an outstanding example of a reserve account requiring further discussion in order to make its true nature and effect clear. Viewing the account under unusual circumstances will permit a fresh approach to its problems; it is therefore proposed to consider first the Reserve for Sinking Fund in the records of a governmental utility. The equitable aim of a governmentally owned utility should be to have its rates cover the costs of rendering service to present users of its facilities. Operation at a profit with the profits being turned over to the municipal authorities for general use can only be justified by the assumption that the amount of utility service consumed is a reasonable basis for allocation of part of the burden of taxes. The problem of equity also extends to the charges assessed against successive generations of users of utility service. To build up a large surplus and retain it within the utility indicates that present rate payers are making it possible for future users of the service to pay less than the full cost of rendering that service to them.

Sidney Davidson, Roman L. Weil, Income Tax Implications of Various Methods of Accounting for Changing Prices, Journal of Accounting Research, Vol. 16, Studies on Changes in General and Specific Prices: Empirical Research and Public Policy Issues (1978), pp. 154-233

Institutional differences in accounting, Inventories, PPE

This article focuses on the income concept, which deals with many major accounting problems. The main focus is on two general concepts, income as an increment in value and income as a predictor of earnings. These may be useful in resolving some problems of income measurement. An understanding of these two concepts may also be helpful in deciding questions of presentation of financial position. The theories underlying income measurement and financial position presentations are, of course, completely intertwined. In practice, the measurements of income and financial position are also fled together, but not always in a beneficial manner. Too frequently the accountant approaches a transaction and chooses the method for recording it that better measures income or better measures the financial position of a corporation. In this paper the author will develop a means of evaluating different ways of recording transactions, without compromising on the quality of either the measure of income or financial position.

This article presents a study on holding gains and losses and the evaluation of management in accounting in the U.S. The result is achieved simply by valuing cost of sales at end-of-period prices. Holding gains are calculated as units of goods available for Sale, beginning inventory plus purchases, valued at end-of-period prices minus the sum of opening inventory and cost of purchases. Then operating profits will be independent of the amount of end-of-period purchases and all gains or losses from fluctuating prices will be allocable to purchasing management.

Reviews the book "Corporate Financial Reporting in a Competitive Economy," by Herman W. Bevis.