Knowledge that Transforms

Reviews the book "Federal Tax Handbook," by Robert H. Montgomery.

Reviews the book "World Economic Survey."

The holding company may be defined as a company which holds a substantial interest in the stock of one or more corporations. Organizations have been established and are in operation at the present time which hold a minority interest in some one corporation, their investment in this company being a very small part of their total assets, as of March 1933. This is one extreme. The other is the giant corporation, the assets of which consist in entirety of the securities of other corporations. In the broad sense of the term, these are both holding companies and there may be found holding companies at each stage between these two extremes. The author attempts to distinguish between the pure holding company and the so-called parent company. Students of corporation finance generally agree that the pure holding company is one which owns no physical properties in its own name and operates none as an organization. Its function is one of holding securities in other corporations for the purpose of directing their activities. The parent company owns both physical properties and securities of other corporations. It has a two-fold purpose, that of operating its producing assets and controlling the properties of its subsidiaries through stock voting.

The last two decades have witnessed an enormous increase in the use of the holding company as a device for financing and welding together hitherto independent units of business operation, as of March 1933. In no field of business endeavor has the growth of holding companies been so pronounced as in the field of public utilities. The motives prompting its use have often been of questionable character. Financial history is replete with instances in which the purpose apparently has been to achieve individual objectives at the expense of the balance of society. Even a superficial study of the economic losses resulting from holding company collapses raises a serious question as to their social desirability. Some students of business insist that the holding company is a by-product of a period of stable price levels when increased outputs with declining costs were the order of the day. They insist that during trying times disintegration will take place and that the successful business of the immediate future will be the small business unit which has shaken itself free from expenses entailed by heavy overheads and idle plants found in the larger organizations.

The article presents information related to some legal and accounting questions presented by the Michigan General Corp. Act. In accepting the invitation from the Michigan Society of Certified Public Accountants to discuss the legal and accounting questions involved in the capital stock provisions of the Michigan General Corp. Act adopted in 1931, it was understood that the discussion of the author would be primarily from the viewpoint of the corporation lawyer. Although the author is not an accountant and does not profess to have any technical knowledge of the theoretical accounting problems, nevertheless, in the actual practice of corporation law it becomes essential to gain some understanding of certain accounting principles involved in the preparation of a corporate balance sheet and presented in every corporate security issue. These accounting principles are interrelated with important legal principles and are of general application quite independent of the provisions of any particular corporate statute.

Reviews the book "Bankers' Gold," by Edgar L. Smith.

This article discusses the three-fold presentation of an accounting problem. The obstacles that confronts a layman eager to attain a good understanding of principles of accounting are limited knowledge of applied business practices, a group of terms, easy of spelling and pronunciation, but difficult of comprehension, a particular mechanism of thought, based upon certain phases of logic and an unavoidable drawing together of the conclusion of a selected example in relation to the probable past and future financial history of the business unit. The principal divisions of a plan proposed consist of – a statement of fact, an accounting interpretation of two parts, journalized form and T-form and observations as may be set out in trial-balance form. The consideration of the three-fold presentation of an accounting problem may depend upon its usefulness as a teaching device in bringing together in concise form certain implied facts and business and accounting relationships and offering a unique method of reviewing in a progressive manner basal principles and materials which form the essence of instruction.

Reviews the book "Corporate Enterprise in Modern Economic Life," by Paul M. O'Leary.

Standard costs are used for the purposes of control, payment of premiums and measurement of efficiency; but the costs which go into the cost sheets and profit and loss statements are so-called actual costs. The elemental standards, as the name implies, are set for each item of variable expense and do not sum up to a standard amount of money, pre-determined, for a unit of production for the department. In using the elemental standards, the standard expense dollars and standard cost per unit are shown alongside the actual expense dollars and actual cost per unit for each item on the cost sheet. The departmental efficiency is computed by dividing standard cost per unit by actual cost per unit, which reflects the superintendent's effective use of time, labor, machinery and materials. Current or average inventory prices are used for computing the average cost of materials on both standard and actual side of the cost sheet, so that the effect of variation in price is removed in comparing efficiency. Each month the general budget is compared with the actual profit and loss statement in a report to the management and the variation between actual and budget is analyzed for the company as a whole in the same manner as each plant has analyzed its own variation.

Income is the economic benefit coming in during a period of time. It consists of current income and of capital gains and losses. The general accounting habit of regarding income as though it were synonymous with realized income, although of some usefulness in practical affairs because it tends to substitute fact for fancy, should be more dearly recognized as both illogical and generally causative of the compilation of false information. All the income--realized, unrealized, and the total thereof--coming into existence during a period should be credited to that period, but the realized should continue to be separated from the unrealized.