Knowledge that Transforms

The Robinson-Patman Act is an amendment to the Clayton Anti-Trust Law. The primary purpose of this amendment is to do away with price differentials as between competing customers to the extent that they were not warranted by economic considerations. The law grew out of the fact that certain groups having great buying power, such as leading chains and mail-order houses, seemed to have buying advantages that were not possessed by the multitude of their smaller competitors: advantages which appeared to be out of proportion to the actual economies growing out of trading in the larger quantities of merchandise. The act has two main parts, the civil and the criminal. Violation of this provision of the law subjects the violator to punishment by the Federal Government with fines or imprisonment, or both, inflicted in case of conviction. Cost accountants as such are primarily interested in the first part of the act which involves the granting of quantity discounts and the proper justification thereof. It is obvious that transactions in order to become subject to the provisions of the act must have certain features. There must be a group of transactions in which there is a price discrimination as between different customers. They must be transactions in interstate commerce.

In the past, charges have been leveled at the annuity method of estimating depreciation, some so serious as to have completely removed it from both formal and practical consideration. These contentions will be discussed in this paper, and in this process will be elucidated what is believed to be a more general annuity method than that ordinarily used. The criticisms with which this paper will be concerned are: 1) imputed interest on the fixed output asset is included in the cost of production; 2) each year's stream of revenues is assumed to be the same; 3) an arbitrary rate is used; 4) difficulty of application is too great. The belief regarding imputed interest arises from the contention that not only is the cost of the asset written off, but also interest on the asset. Because a rate is applied to the asset to show its growth during an accounting period as it approaches one period closer to its stream of net revenues, the suspicion is immediately amused that this must be interest. In order that the validity of this contention can be examined, investigation must first be made as to what rate is pertinent to the annuity method.

In this article, the author focuses on the adequacy and reliability of corporate accounting reports provided to stockholders and security analysts. He tries to point out the gap in the regulation of accounting reports under Securities Exchange Act, based on around seventy selected corporate balance sheets and income statements for 1937. He also discusses a number of limitations inherent in the accounting material made available to investors. Accountants and investment analysts today are agreed that the income statement is much more significant and informative to the investor than the balance sheet. It reports that the Act applies to corporations with securities listed on national securities exchanges and requires such corporations to file with the Commission and with the exchange annual reports which comply with the standards imposed by the Commission and the exchange. The article undertakes to break additional ground in the inevitably forthcoming critical analysis of accounting categories and accounting concepts.

This article tries to find a answer as to whether leasehold improvements are taxable income in the U.S. The Treasury Department has said yes. The lower courts have said no. The issue has not yet been decided by the U.S. Supreme Court. The U.S. Supreme Court attempt to uphold a tax on leasehold improvements will be hampered by its severance theory, that the income must be "something of exchangeable value proceeding from the property, severed from the capital, and coming in, being 'derived,' that is, received or drawn by the recipient for his separate use, benefit, and disposal." An improvement to land, either at the time title to the improvement passes to the lessor subject to the lease, or on reversion by default or any other cause is not exchangeable except as attached to the land. Even the relation of embryo and prospective parent does not obtain to give color to the claim of income in process of realization. The improvement will never be severed from the land except as salvaged material not a part of the growth process.

The price legislation referred to in this article includes the Robinson-Patman Act, the various state resale-price-maintenance laws together with the Miller-Tydlings amendment, and the minimum-price laws, which have recently enacted by the U.S. government. Some of the features which these laws have in common have been suggested. These laws impinge upon prices in apparently different ways, the first deals with relative prices paid by retailers, the second with prices relative and absolute charged by retailers for identical branded goods, and the third group with prices charged by retailers on any and all goods relative to the costs of those goods. To discover the real significance of these laws, one must be concerned with the identity of sponsors, their motives, and the state of mind of the public and the legislators who approved them than with the defenses that can be offered for them. The broader significance of recent price laws is that they are antichain-store and antiprice-cutting laws. As such, they are designed to protect the general run of independent merchants from the competition of those who threaten the existing order.

For many years, the accounting professionals in the U.S. have recognized the need for the preparation required by accountancy students in the field of auditing, and conceived the idea of the link between theory and practice as a business clinic where students might work among the records of actual transactions. In 1914, Robert H. Montgomery, a professor at the Columbia University, New York City obtained a number of sets of used account books which formed the basis for the course of study which has been given since 1915, termed as the Auditing Laboratory. From time to time since, additional records have been obtained until at the present time there are approximately 100 workable sets of books of greatly diversified activities. Questions and problems, to be solved only by an actual examination of the books and other records, provide the basis of the student's work. This gives him a practical working test under conditions which very closely correspond to those met in actual practice. All through the work done by the student, the preparation and care of his work papers are carefully watched and criticized; the preparation of audit programs and the proper filing of work papers in the permanent and current files for the different engagements are also stressed. The Auditing Laboratory contains labor saving devices, such as adding and other computing machines, slide rule, etc., etc., in the legitimate use of which the student is urged to become adept.

In the article, the author discusses on the progress made in the balance sheet practices. There is still a good deal of confusion, however, due largely to the lack of uniformity and definition in balance sheet terminology and to the use of narrow or "specialized" methods of approach in our efforts to solve the problem. This is particularly true for the moment designate as the "net asset" section of the corporate balance sheet. The influence of the double entry method on the reasoning of accountants has long been a suspicious issue. The quality of accountant's logic has on occasion been impaired by their passion for balance. Therefore, the author starts with the corporate balance sheet in statement form, a showing based on the formula of assets minus liabilities as representing net assets. The "three layers" of balance sheet have been characterized as the gross economic capital, itemized and individual liabilities and their total, and the net economic capital of the enterprise. The author submits that the subdivision of net economic capital is to be made on the basis of origins, restrictions on withdrawal, and administrative control.

Reviews the book "Commercial Banking Reform in the United States," by Leonard L.Watkins.

In this article, the author discusses issues and beliefs on accountancy as a profession for well-educated men. He observed different views and publishing of various eminent members of the accountancy profession and researchers regarding this topic. According to these studies the thought that members of the accountancy profession should have well-developed intellectual, moral and cultural faculties is a relatively new idea in the history of the profession. The author reports that the accountancy profession had its beginning in England, probably at some time during the seventeenth century. It seems quite probable that the early public auditors, or public accountants, of England worked single-handed, but in the course of the increased recognition and prestige which these men obtained from the field of business it became necessary for the principal to secure the services of assistants. The idea of the desirability of a technical education for those entering the accountancy profession gradually took form after the year 1900. It is argued that the profession needs greater educational as well as personality qualities because the professional should have engagements in complex and technical duties, such as, auditing, the installation or revision of systems of accounts, special investigations, municipal or other governmental auditing and system installation, engagements pertaining to the financial affairs of trusts, receiverships, bankrupt and decedents' estates, and audit and system installation engagements involving cost accounting.

Reviews the book "Business Cycles: a Theoretical, Historical, and Statistical Analysis of the Capitalist Process," by Joseph A. Schumpeter.