Knowledge that Transforms

The article presents a case study of price-level adjustments to the financial reports of a large department store. The method outlined is designed for a study of a twenty-year period. The results of the adjustments to dollars of constant value revealed the expected distortions in periodic income reporting. In as much as the general price level rose during the year ended January 31, 1947, the adjusted balance sheet reveals that the non-monetary items, such as inventories, land, and depreciating assets, exceeded the historical costs by material amounts. In the proprietorship section, the value of the stockholders' original investments in common stock was increased by $6,368. The retained earnings are not as high as reported by $3,621, due to the continual overstatement of "real" income during the inflation years. The net income after taxes was distorted in the annual report by almost a half million dollars. In addition, an unrealized loss of $946 was omitted entirely from the report to stockholders. It appears that this type of information would have been very informative to existing and prospective stockholders.

Reviews the book "Evolution of Cost Accounting to 1925," by S. Paul Garner.

Reviews the book "Private Credit and Public Debt," by Anatol Murad.

The article presents the subject classification and previous published lists of research projects in accounting. The various subjects listed include, income determination, price level changes, inventory pricing and valuation, fixed asset valuation and depreciation, investments, current and fixed liabilities, and capital stock and surplus, under theory of accounting. History of accounting, reports and statements, public accounting, accounting for industrial, mercantile and financial enterprises, non-profit enterprises, legal and governmental aspects of accounting, reorganization and liquidation, and education are also included in the list. Some of the projects listed in the article are "Accounting Period--Theory and Analysis," by Colin Park, "Relevance to Income Determination of Present and Period Analyses of Enterprise Activities," by William J. Schrader, "Adjusting Financial Statements For Changes in Price Level," by Virgil Boyd, "Depreciation Based on Replacement Costs," by William David Tuxbury, etc.

Reviews the book "Individuals' Saving: Volume and Composition," by Irwin Friend and Vito Natrella.

Since joint product costing is itself a costly process, it seems important to be assured that the results are worth the cost. The uses, which can be made of joint cost calculations, are not usually clearly defined. The main use, and the only one commonly recognized, is the pricing of joint products in inventories. For management guidance, the separation of joint costs by the joint products is assumed to serve no useful purpose. The products originate from common materials and a common processing up to the split-off point and are inseparable up to that point. Managerial decision cannot be exercised as to whether or not to exclude one or more of the products in the processing; they must all be produced or none. Furthermore, the chance to vary their relative quantities in the short run is practically non-existent. Hence management gains as much control information from their total combined cost figures up to the split-off point as it would from those same joint costs divided among the products.

This record constitutes a splendid testimonial that the manufacturing chemicals industry in the United States has fully met its responsibilities by utilizing its personnel and capital resources to create a more fruitful world. The major unresolved issues are in regard to the basis to be used in charging current manufacturing costs for inventories utilized, which were purchased or produced in a preceding period, and for the exhaustion applicable to the current period of plant and equipment acquired in prior years when the purchasing power of the dollar was much greater than it is today. In the case of inventories, the last-in, first-out method of costing has been recognized for several years as an accept-able accounting method for costing goods sold. Therefore, managements of enterprises have the option of using either cur-rent or historical inventory costs or some combination of the two in computing the costs of goods sold during the year. In any event, there is no accounting road block to the accomplishment of this objective if managements of business enterprises in America conclude that it is sound business practice to do so.

Reviews the book "Procedure and Practice before the Tax Court of the United States."

Reviews the book "Big Enterprise in Competitive System," by A.D.H. Kaplan.

The article focuses on management contracts, expense sharing agreements and tax planning. In recent years, many studies have discussed tax planning and tax effects. Comprehensive comparisons have been published listing tax factors that influence the choice of type of organization corporation, partnership, or sole proprietorship. One tax review lists as tax factors in the choice the tax burden, tax concern, capital gains and losses, exempt interest, social security taxes and community property. It gives a detailed analysis on tax problems of personal holding companies, improper accumulations and other transactions. One phase of the subject which has not been discussed frequently and which is the subject of this study is the contract entered into to regulate management compensation or to allocate administrative expenses between one or more operating businesses or companies. These contracts are generally known as expense sharing agreements. They may be entered into between parent corporations and its subsidiaries, or they may be used in a situation where the managing corporation has a controlling interest in the managed corporation.