Reviews the book "Inflation and Company Finance," by Russell Mathews and John McB. Grant.

Abstract This article presents the price-level study of the American Accounting Association. The rate of return on the total investment is probably the most important single calculation which can be made from financial statements. The second set of percentages shows the rates of return for 1941, for 1951, and the average for the period 1941-1951. In general, the rate of return on the total investment on a constant-dollar basis was about half of the reported rate. One of the common complaints about income taxes is that they make no allowance for the changing value of the dollar. They tax reported income without taking into account that the amount needed to maintain capital in terms of its purchasing power has substantially increased. Also, firms having a relatively large investment in depreciable assets are discriminated against as compared with other industries whose costs are much dozer to current figures. It is important to note, however, that neither the company as a business entity nor the common stock interest was worse off than if the issuance of the preferred stock had been postponed until the very day on which the funds were needed.

Abstract The article presents a report on the American Accounting Association. It states that the large increase in membership among the non-teaching accountants, which took place a few years ago, has been maintained and a substantial number of new members have joined the association. The journal, The Accounting Review, under the editorship of Frank P. Smith, has continued to serve instructors, students and practitioners with a series of significant and helpful articles, book reviews, solutions to certified public accountant (CPA) examination problems, and news items of members of the association. The association has established closer relations with the Controllers Institute of America and with the Institute of Internal Auditors, which should lead to significant results during the coming year. The Membership Committee is the largest committee of the association. Each state and the District of Columbia, as well as Canada, has a member on this committee. Special attempts have been made to increase the number of teacher members, while welcoming the professional, governmental and industrial accountants who are interested in joining the association.

Abstract The third attempt of a committee of the American Accounting Association to prepare a systematic statement of accounting concepts and standards deserves much praise and those who are responsible for the drafting of the material should feel that it has made a real contribution. Most of the propositions can be accepted as valid and as contributing toward more effective corporate financial statements. The organization of the material has been improved, particularly by grouping separately the standards to be applied in the preparation of financial statements so that they can be distinguished from the more basic concepts of asset valuation, income determination and the classification and measurement of the equities. It is hoped, however, that an early revision will be published which will incorporate the changes, few though they may be, which seem to have general support. Also, it would be helpful and interesting if the policy were adopted of presenting minority reports. Surely the statement as it stands must be the result of many compromises of differences of opinion. It is doubtful if the time has arrived when one can subscribe without dissent and exception to as many propositions as appear in this statement.

Abstract The article presents an overview of the problems which arise in connection with the lecture method in accounting. The University of California has for some time been noted for an extensive use of large lectures in many courses, including some of the courses in accounting. The men in charge of the laboratory work in the advanced courses have the rank of Associate, have a master's degree and are working towards the doctorate. Those in charge of the sections in the elementary course ordinarily are graduate students working towards the MBA degree, and they are given the title of Teaching Assistant. There are five lecture sections in elementary accounting, including both semesters of the course. Correlation of the lecture and laboratory sessions is another problem. Attempts are made to work out an approximately uniform procedure for handling the lectures and laboratory work, particularly as to the emphasis which is to be placed upon certain points. Lectures alone without the laboratory would certainly be very ineffective. A group of good graduate students can often do a better job for the beginning students than a group of part-time instructors drawn from accounting practice.

Abstract Reviews the book "Federal Taxes—Estates, Trusts, and Gifts," by H. Montgomery and James O. Wynn.

Abstract The most extensive treatment of depreciation by the U.S. courts has been in the field of public-utility rate regulation; but depreciation has also been considered in other types of cases, including: income tax cases, the determination of corporate income which can be distributed as dividends, the settlement of partnership agreements when the amount of income is in dispute, the life-tenant remainderman situations, master-and-servant cases when a part of the servant's compensation is a share of net income, patent cases when the royalty is a portion of net income, and eminent domain cases in the determination of the value of the confiscated property. In building up an interpretation of depreciation provisions over the years, the courts have proceeded much as the same way; that is, they have attempted to interpret the laws according to accepted practices and standards. Although there is an occasional cross citation, the cases on public-utility rate regulation, in which depredation is involved, seem to constitute a separate group, unrelated to income tax and other types of cases. In the opinion of the author there has been a definite trend in recent years toward the acceptance of complete, systematic depreciation accounting and the recognition of the inevitably close relationship which exists between the periodic allowance and the deduction made in rate-base valuations.

Abstract The article focuses on opinions expressed by the justices of the Supreme Court of the United States on depreciation that had a marked influence upon the subsequent decisions of the state and the Federal public utility commissions. In no case prior to the Knoxville Water Company case in 1909 has there been more than an incidental reference to depreciation, or a brief discussion which indicates an entirely inadequate knowledge of its nature and problems. Definite recognition was given of the necessity of a utility keeping its property in good service condition, but little or no appreciation was evidenced of the function of depreciation accounting methods. A statement was made in the case of United States v. Kansas Pacific Railway that only such expenditures are actually made, can with any propriety be claimed as a deduction from earnings, and the creation of an unspent reserve through periodic charges to operations was prohibited.

Abstract The belief that it is the principal if not the sole purpose of depreciation accounting to provide for the financing of the replacement of plant and equipment with units of the same type or capacity when the individual items have to be retired from service is widely accepted and frequently expressed. This opinion is now seldom found in technical accounting publications but it is still frequently present in general business, engineering and legal literature. The early publications on bookkeeping and accounting are largely manuals of technical procedure with little to indicate the underlying philosophy or principles. In 1764 John Smeaton, an English engineer, worked out an elaborate schedule for the operation of a canal which provided for an annual income which would cover the "common annual expenses" and would provide a fund accumulated at compound interest by equal annual installments which would "preserve the work to perpetuity" by financing the replacement of parts of the canal as they wore out, although he indicated in a comment at the end of the schedule that the increased trade which could be expected would take care of these irregular repairs without the creation of such a fund out of income.

Abstract The problems of depreciation accounting are limited to the periodic determination of costs and expenses and to the amortization of the corresponding asset accounts, but the financial aspects of depreciation accounting present some important problems, and various misconceptions of the actual effects and relationships are widespread. The recording of depreciation as such has no effect upon the amount of assets which come into the business except that in so far as the selling price of a product may be based upon its cost of production, depreciation, as one of the costs of production may be said to help determine the gross income. The financial aspects of depreciation accounting may be utilized in the administration of the financial budget. The amount of depreciation included in the budget of expenses may ordinarily be considered as available funds in the financial budget and may be appropriated for any purpose. If it is feasible or desirable to make replacements with borrowed capital, the funds made available by the depreciation accounting might well be used to retire the original indebtedness or other original investment.