The purpose of this article is to add a somewhat different point of view relative to the very interesting and complex problem of accounting for depreciation and income taxes when the depredation for tax purposes is different from the depreciation computed for financial accounting purposes. A problem in financial accounting arises whenever the internal revenue code allows an item to be expensed for tax purposes at a rate or over a period of time different from that which a reasonable accountant would use. There are several possible methods of accounting for this situation. The argument of this paper is that tax computations affect the value of an asset, thus affect the amount of the costs written- off as expenses during the period. The answer to the problem of allocating the cost of an investment to different time periods lies in the recognition that depreciation accounting is tied to expiration of value, and the write-off of an asset for tax purposes changes its value.

Accounting is the art of measuring and communicating financial information. This statement is not shocking or even surprising, yet the acknowledgement that accounting is concerned with measurement is the first necessary step towards a long awaited revolution in accounting. This revolution is not restricted to accounting, it has already taken place in other disciplines where measurement is crucial. For example, the classical concepts of measurement in physics and psychology have already undergone drastic changes. It is time for restrictive definitions of measurement in accounting to topple. In the distant past man used numbers in a simple manner. For example, he counted the number of sheep in the field and possibly added the number of sheep in one pasture to the number of sheep in another pasture to find the total number of sheep. But now numbers are used in a much more complex manner. For example, psychophysicists use numbers to express measures of loudness and physicists measure the mass of the sun or the velocity of an electron. Thus the nominal scale is used to know whether water is frozen or liquid, and an ordinal scale whether it is cold or colder, and the interval scale is used to willing to register under the Act of 1855. The framers of this Act attached increased importance to the position of auditor, in the hope of protecting third parties from being harmed by their inability to go beyond the assets of the company to the personal assets of the proprietors in the event of insolvency.