Knowledge that Transforms

The article presents a comment on a previous article that appeared in the journal The Accounting Review. The presentation of an author's paper on obsolescence at Philadelphia, Pennsylvania last winter and its publication in the June issue of the journal The Accounting Review represent long overdue attention to this important subject by accountants. It is to be hoped that this paper is the beginning of really adequate attention to this subject, and that the author's other writings will shortly see the light of day in published form. At first glance the proposal that obsolescence should be accrued separately from the physical factors in what accountants commonly lump together under the head of "depreciation" is likely to arouse no great enthusiasm in the mind of the orthodox accountant. In spite of the rather gloomy picture of the present status of depreciation accounting presented in the article, or perhaps because of it, the impression should not be created that improvements cannot be expected. Quite the contrary is true. Further inquiries into the causes of depreciation in an attempt to measure their relative importance are fully justified. The result will be improved determination of depreciation rates and a sounder approach to the problems of managerial control.

The article focuses on various problems, which were prepared by the Board of Examiners of the American Institute of Certified Public Accountants (CPA) and were presented as the second half of the May 1940 CPA examination in accounting practice. The examinee was given six hours to solve problems 1, 2, 3 and either problem 4 or 5. Problems were weighted as follows: problem 1, 10 points; problem 2, 25 points; problem 3, 30 points; problems 4 and 5, 33 points each. In one question, details of two hypothetical companies namely A and B, which are entirely owned and controlled by same interests, are presented. The company A's condensed balanced-sheet for a particular year is presented in the article. In another question, another hypothetical company, namely, S.S. Manufacturing Co. is discussed, which completed construction of its plant for the manufacture of lawn mowers on January 1, 1939 and commenced manufacturing on January 13, 1939. The examinee is required to restate the actual and standard production costs for the thirty-day operating period and show the estimated loss by theft of the 500 lawn mowers.

Development of the controllership functions, and position, as it is found today in American business, undoubtedly can be traced to the official Comptroller in Government posts, performing duties prescribed by law, in an effort to see to it that only appropriated funds were disbursed and for the purpose intended. This Government function came over into business as business units grew in size. Consequently, the position of "Comptroller" was found first in large concerns, such as railroads, mines, and large manufacturing establishments, many of which have had that office for forty to fifty years. A good controller is a service man, and must be a good salesman to sell the services of his department to the heads of the various operating departments. The most important function of a controller is that of interpretation of financial statements and other figures to the executives. It is amazing how some executives shun figures, especially a large sheet of figures. Therefore, it is frequently necessary to put important financial facts in story form with a punch to it.

Reviews the book "Business Cycles and Forecasting," by Elmer C. Bratt.

The article discusses various issues related to valuation for profit determination. For many years controversy has centered upon the question: "Should depreciated cost or should some form of present value of fixed assets be reflected in the balance sheets of business organizations?" Many cases involving valuation have been before the courts. Of these, the leading accounting and financial cases pertain to rate-fixing, the recapture clause, taxation, and transactions between corporations and their promoters, inter alia. Few cases relate to the question and then only indirectly. The opinions of the United States Securities and Exchange Commission are more helpful. From the investor's viewpoint the profit-and-loss statement is of primary interest in that it furnishes information necessary to measure the success of management in accomplishing the fundamental purpose of a business venture, making profits, and gives some indication of earning capacity and future prospects. Profit determination over the span of an enterprise's life is a relatively simple matter.

Reviews the book "Budget Principles and Procedure," by John R. Bartizal.

Reviews the book "State Supervision of Local Budgeting," by Wylie Kilpatrick.

The article focuses on cost accounting in Germany. The author has presented the defined principles and objectives of German accounting, together with a uniform accounting plan in one of his articles. The Board of Industrial Economy has continued its work with regard to improvement in all fields of accounting. The purpose of these "General Principles of Cost Accounting" is to assist in achieving increased economy in production, for it is believed that a cost-accounting system based upon these principles will lead to a correct ascertainment and clear conception of all costs involved. Such a system will promote cost supervision, estimate, price determination and cost comparison within the plant or within the industrial group. All these steps will contribute to the final goal: increased economy and greater performance in business and industry. The performance of a business is definitely determined by its costs. The influence, which a profound knowledge of costs will have upon the formation of prices within an enterprise must further-more result in cleaner conduct among competitors.

The article focuses on theories and practices of accounting. For two decades, accounting processes of the Federal government have drifted along without leadership and with no central guiding principle. Papers, which appeared in the March 1940 issue of journal, The Accounting Review, amply indicated the dissatisfaction of those who have carefully investigated existing practices. There are many persons familiar with Federal accounting to whom the idea of following the commercial pattern is somewhat repugnant. Government is organized for service, not for profit. But costs are the same everywhere and government stands to gain if the well-developed notions of cost accountants can be adapted to the Federal picture. The balance sheet of a Federal department, commission, or other agency need not differ from that of a private corporation, except for the net worth section; yet a number of Federal establishments cannot produce a balance sheet, notwithstanding their ownership and use of various sorts of assets.

Reviews the book "Cost Accounting," by John G. Blocker.