Knowledge that Transforms

Abstract This article presents cases which are resumes of situations of interest to accountants, arising in the work of the Securities and Exchange Commission. In each instance, a problem appears together with the solution brought about by recommendations of the Commission's staff. The names of registrants do not appear, but if further study of any one or more cases is desired, the names may be secured from the editor of the "Review." The balance sheet of a distilling company showed "Fixed Assets: Property," plant and equipment at cost. The notes and schedules referred to indicated that, of this amount, $48,343.81 represented property "purchased on a lease-purchase contract," was payable as rent, in monthly installments and "at the expiration of the ten-year period legal title is to pass to the purchaser." In the opinion of the Commission's staff, because of the nature of the contract, it was improper to designate on the balance sheet any part of the amount to be expended under the lease-purchase contract as "Property, plant and equipment" before the expiration and fulfillment of the contract.

Abstract The article discusses the need for accounting principles. The income statement for any given period should reflect all revenues properly given accounting recognition and all costs written off during the period regardless of whether or not they are the results of operations in that period. The wide distribution, of corporate securities, the inability of the vast majority of investors to judge the value of their investments by any close-range view and their dependence upon information contained in published financial statements, has placed a responsibility upon the accountants to which many of them have not yet become adjusted. According to the author, procedures so generally followed among accountants as to constitute substantial precedent are not always fundamentally sound. The extent to which a particular practice is generally accepted is hard to measure. Those who depend upon precedent are usually content with finding a number of cases to support their position without substantial effort to ascertain the extent to which other practices are followed.

Reviews the book "The Common Stock Theory of Investment. Its Development and Significance," by Chelcie C. Bosland.

Reviews the book "The Behavior of Money," by James W. Angell.

Reviews the book "Determination of Confusion in Trade-Mark Conflict Cases," by Neil H. Borden.

Reviews the book "Exchange Depreciation. Its Theory and Its History, 1931-1935, With Some Consideration of Related Domestic Policies."

Reviews the book "International Monetary Issues," by Charles R. Whittlesey.

Abstract Many accountants appear to have no very definite notion of what a balance sheet is. Forthright opinions on the subject are rare; by inference, however, two main trends of thought may be distinguished, one of which is based on the capital-value or property concept and the other on the investment or amount-of-money-advanced concept. The former is exemplified by the so-called fundamental equation: Assets minus liabilities equal net worth. Numerous remarks on the subject of accounting valuations clearly show that their authors were guided at least temporarily by the idea that a balance sheet is or ought to be a statement of the worth of the business. This comment applies to all who would write up good will not purchased or who hold that, if purchased, it need not be amortized until it is actually worth less than it cost. That patents need not be amortized, because they are, in time, supplanted by good will, and that if a company's stock is quoted at a discount, its balance sheet must be inflated, are further samples of the same trend of thought.

Abstract The objective test in accounting is a test designed to cover a large amount of material, to have a large number of questions requiring very brief answers, the answer to each unit being the same for every student who answers the questions correctly. This kind of test has in recent years been referred to as the New Type Ten but since its use has been so commonly adapted it seems best to the writer to refer to it, not as a new type test, but as an objective test. In Indiana University the increased enrollment in accounting, without a corresponding budget increase, has necessitated some means of measuring student achievement with a minimum of clerical effort. The staff has regularly felt that the instructor's real service to the student comes from adequate preparation and presentation of materials rather than in the type of drudgery that accompanies long hours in marking papers. The institution requires that teachers give each student a letter grade each semester and the objective test furnishes the measuring device for arriving at the correct grade.

Abstract Arrangements with the U.S. Securities and Exchange Commission have been made whereby the Accounting Review will be supplied from time to time with cases of accounting theory and practice. These cases consist of points on which the Commission's staff has rendered decisions. It is understood that these decisions do not establish precedents which the Commission is to follow blindly in the future, their importance lies in the type of reasoning which the Commission tends to follow and in the ultimate influence which it may have on accounting procedure. The Commission's staff considered it improper to write up the company's inventory than amount which did not allow for the realization of normal selling expenses and profit on its sale. That net-worth problems should constitute so large a proportion of registration cases is not surprising. The statement of investor relationships must not only satisfy the management; it must be an informative presentation from the point of view of the banker, the attorney, and the financial analyst.