Depreciation, Exchange rate, Price-level adjusted accounting, Asset valuation

Inventory calculation procedures may be viewed as a set of linear transformations or functions which map the appropriate price and quantity vectors into a corresponding set of valuation scalars. This paper examines some of these calculations in terms of elementary matrix operations. The matrix can be readily adapted to the computer, and standard programs now exist for performing matrix algebra operations. These can be used for the required accounting calculations discussed herein. First, we consider purchase transactions; each such transaction may be described by a pair of points representing quantity and unit price, respectively. The purchase quantities, by years, may be represented by a diagonal matrix having, as the elements of its main diagonal, the quantities purchased during each accounting period. Such a matrix, Q, with typical element qji, for n accounting periods would appear as follows:

Cash flow earnings, Net income adjustments, Earnings quality

Reviews the book "Inventories Control, Costing and Effect Upon Income and Taxes," 2nd ed., by Raymond A. Hoffman and Henry Gunders.

The article focuses on the trend of corporations funding extensively for research to improve upon their profit margins. It is estimated that business units in the U.S. are spending nine billion dollars annually on research activities. Firms in some industries such as pharmaceuticals, chemicals, and electronics depend upon research for their survival, and it is not uncommon to find companies in these fields spending more for research each year than their reported earnings. Since these expenditures have reached extreme proportions, the accounting treatment of research costs has become a vitally important factor in determining the income of the companies involved. It is concluded that the procedures currently used in accounting for research and development do not present a realistic picture of the economic consequences of this activity. They also are inconsistent with the principles which are generally applied to other areas of accounting. In addition, they provide management with an incentive for cutting back research expenditures although such curtailment might have a deleterious effect upon the long-range position of the company.

Determining the cost of inventories for financial statement purposes has presented the accounting profession with a predicament which has worried many accountants for a number of years. It is desirable to determine inventory cost for financial statement purposes in a manner which provides the best indication of periodic income for each particular firm. This should allow comparisons to be made of a company's economic progress from year to year without misleading distortions. The two goals comparability among companies and between years on the one hand and selection of methods to suit individual circumstances, on the other seem to be incompatible. This is because there is wide disagreement among companies concerning the inventory flow assumption which provides the clearest indication of periodic income. The survey of corporation annual reports conducted each year by the American Institute of CPA's reveals that none of the three primary procedures LIFO, FIFO, or average-is used by a majority of companies.

The article informs that one of the most difficult rules for students of accounting to comprehend is the pricing of inventory items at "cost or market whichever is the lower." Because the application of this rule lends itself to numerical calculation, much classroom time is often devoted to the topic, and many texts include numerous examples in attempting to illustrate the procedure. The confusion for the students stems largely from the complex definition of "market" given in Accounting Research Bulletin No. 43. The limitations on market contained in the definition are often referred to as "ceiling" and "floor" respectively. Per- haps this terminology has contributed to the misunderstanding, as one who has not carefully studied the above definition may feel uncomfortable about valuing inventory items at cost in cases where cost is less than "floor." Of course, the "floor" constraint pertains only to the determination of "market" and should not be applied to cost.

When representatives of labor unions meet with employers to negotiate employment contracts, the discussions often include a consideration of pension plans. More than 20 million workers are now covered by some 25,000 private pension plans, and theft number is constantly increasing. Accounting Research Bulletin 47 defined a pension plan as, "a formal arrangement for employee retirement benefits, whether established unilaterally or through negotiation, by which commitments, specific or implied, have been made which can be used as the basis for estimating costs. The problems which arise in estimating these costs and charging them to income of the appropriate accounting periods include a consideration of both the so-called "past service costs" and the cost of current services. The past service cost is a problem only at the inception of a pension arrangement, yet has been given considerable attention by accountants. However, the equally important issue of how to deal with current service costs has been relatively neglected. As a result, these costs are often treated improperly in the accounts, particularly in the case of non-funded plans.

In order to provide an amount of cash which would be necessary following the untimely death of an important personnel, many business enterprises carry life insurance policies on key personnel for e.g. a partnership might need cash to settle with the estate of a deceased partner without having to liquidate business properties and a corporation might wish to be protected from the unusual costs, which would be incurred in replacing an important executive. As the value of an important man to his company is likely to be rather high, and top executives are often well along in years, the premium costs of these life insurance policies can be substantial, hence a sound basis of accounting for life insurance should be established. Basically there are two major types of policies, which a firm may purchase to provide for the contingency of an officer's death. They are term insurance and ordinary life insurance. Term insurance provides protection for only a limited period of time and the cost of term insurance is based on the probability of death at the given age and an amount to cover expenses and profits on the sale of the policy. On the other hand ordinary life insurance differs from term insurance in that a level premium is charged throughout the life of the insured. In accounting treatment of these transactions, term insurance does not present much of a problem. While for ordinary life insurance there are two generally used methods of handling the premiums.