Knowledge that Transforms

The article presents problems that prepared by the Board of Examiners of the American Institute of Accountants and were presented as the second half of the May, 1949 C.P.A. Examination in accounting practice. The candidates were required to solve problems 1 and 2 and either problem 3 or 4. One of the question provided information that the Rheta Rose Manufacturing Company produces an item which it sells direct to consumers under its own brand. The item sells at $12.50 per unit, which is a long-established price. Due to a general decline in business activity, sales are currently being made at the rate of 5,000 units per month which is only 40% of the normal productive capacity of the plant of the company. The question includes An analysis of the costs of the company for a recent month, during which only 4,000 units were produced and 5,000 units sold. An offer has been received from a chain store by the treasurer of the company to purchase 5,000 units a month of the product with only immaterial modifications, to be shipped and billed to the individual stores. The items would be sold under the store's label and would be packed and shipped as directed by the chain at their expense.

Reviews the book "Personal Finance," by Elvin F. Donaldson.

Reviews the book "Auditing," by Thomas W. Byrnes, K. Lanneau Baker, and C. Aubrey Smith.

The systems of accounts for public utilities have been revised more or less extensively since 1937. Of the several interesting features embodied in these systems, one particular innovation, the original cost procedure, really deserves more careful attention than accountants have seemed willing to give it. The principal advocate (but not the originator of the idea) of the original cost procedure for utility systems of accounts has been the Committee on Statistics and Accounts of the National Association of Railroad and Utility Commissioners (NARUC). The original cost procedure ingeniously utilizes accounting techniques to isolate and emphasize information which the regulatory authorities have said they must have in order to discharge their regulatory functions adequately. Depreciation is universally prescribed for public utilities in modern uniform systems of accounts. This requirement raises the interesting question of whether the acquisition adjustment account is to be subjected to similar periodic write-off. The system, in fact, does provide that the amounts recorded in this account with respect to each property acquisition shall be depreciated, amortized, or otherwise disposed of, as the Commission may approve or direct.

In England, as in the U.S., the accountancy profession has been quietly and steadily advancing in status and gaining in responsibility. Qualities which society expects from members of such a developing profession puts upon that profession the obligation of attracting into its ranks men and women of the highest character and intellectual ability. It has always been recognized that a regard for the liberal education and intellectual discipline tendered by a university conferred advantages upon those members of the profession who either had sought it as opportunity offered, or had been antecedently brought to it under the guidance of a discerning tutelage. But now the reconciliation has been carried one stage further and the accountancy profession in England has sanctioned a scheme, prepared by a joint committee representing universities and the profession, whereby it is possible to obtain within a period of five and three quarter years both a university degree and a professional qualification. Thus, it has achieved a provision for the university education of prospective members of the accountancy profession. Although the scheme is voluntary it may very well be said that professional education has now been secured within boundaries of those institutions concerned with the penetration and depth which come from the pursuit of a liberal education.

Magnitude of the post-war price increases and the forecasts by competent economists of the likelihood of a continued secular price rise have had considerable influence on published views of the accountants. Accounting literature during the past eighteen months has increasingly reflected the viewpoint that accounting procedures should drop the assumption of a stable monetary unit and should recognize changes in the purchasing power of money. When the price level rises, what happens to the value of real assets and the purchasing power of money. The appropriate answer to this may be found by a consideration of the fundamental nature of money. One of the functions of money is to provide a numeraire, a common measure of values. The real value of a specific commodity is not defined by its absolute price, but by its price in relation to the prices of all other goods. If price levels change, reinforcing influences are set in motion. Money itself is used as a medium for investment and disinvestment. There exists a demand for and a supply of money itself. The value of money is determined by the same principles as the values of other economic goods. If changed price levels require modifications in inventory pricing procedures and depreciation cost measurement, gains and losses arising from changes in the value of money must also be recognized. H.W. Sweeney has emphasized, more than any other individual, the influence of changing price levels on the accuracy and relevance of accounting reports. The procedure set forth by Sweeney prescribes that the balance sheet items be stabilized first.

The significance of facts is mere important than the facts themselves, and if accountants know the significance, people may even forget the facts. This thought, expressed by Oliver Wendell Holmes, seems pertinent when appraising the relation of accounting to management. It is the managerial significance of business data that is really important. Ideally, the greatest aid that accounting could offer management would be to assist in the accomplishment of its objectives through the preparation and interpretation of appropriate statements. The techniques whereby business transactions are recorded and their values eventually placed in the statements are of secondary importance. The relation between accounting and management has been commonly expressed by the phrase that accounting is a tool of management. This means that it is possible for management, through the use of proper accounting reports, to make decisions and to formulate policies based on recorded business data. The function of interpreting accounting records has been accepted by accountants.

The article presents problems that are prepared by the Board of Examiners of the American Institute of Accountants and were presented as the first half of the C.P.A. examination in accounting practice in November, 1948. The candidates were required to solve all problems. One of the question is that the Waverly Manufacturing Company has decided to change its method of distributing factory burden to its products, all of which are manufactured on special order. An appropriate departmental rates, based on the company's operations for the first half of 1948 is to be developed and to illustrate their use by determining the cost of Job Order No. 987 by applying the rates you develop. Another question is that monthly cash budget for AB Trading Company for the three months ending March 31, 1949. AD Trading Company purchases merchandise on terms of 2/10, n/60, and regularly takes discounts on the tenth day after the invoice date. It may be assumed that onethird of the purchases of any month are due for discount and are paid for in the following month is to be prepared from the information given.

Tax Settlement board proposed by Representative Wilbur V. Mills of Arkansas, a member of the House Ways and Means Committee, would fill the place which was originally supposed to be occupied by the old Board of Tax Appeals. Mills' bill would also help to clarify and secure the position of certified public accountants in tax practice through its provision that anyone admitted to practice before the U.S. Treasury Department would automatically be admitted to practice before the Tax Settlement Board. As first planned in 1924, the Board of Tax Appeals was to have been an informal agency which would settle tax controversies with a minimum of delay and expense to the taxpayer. However, the bill creating the Board of Tax Appeals was amended before passage to require the use of formal rules of evidence in the Board's proceedings. With the burden of proof on tax payers who appealed their cases to the Board, this meant that such an appeal would almost certainly be costly and time consuming. As years went on, the Board of Tax Appeals became more and more like a court of law and its name was changed to U. S. Tax Court in 1942.

Reviews two volumes of the book "Economics, Principles, and Problems," 3rd ed. by Paul F. Gemmill and Ralph H. Blodgett.