Abstract This article presents information on various lawsuits related to the use of accounting statements as a means of committing business deceit in the U.S. Turning now to the individual items appearing in a balance sheet, it should first be noted that judges have had some interesting opinions involving accounting conventions in the valuation of the assets therein. One decision, for instance, stated that the integrity of a statement of financial condition should not be impeached because the firm's plant had been listed at its value as a going concern, and not at its liquidating value in the lawsuit U. S. Smelting Co. vs. Hofkin. The courts, however, were not so positive in their acceptance of cost or market, whichever is lower, in valuing assets. While one decision definitely held that showing merchandise inventory at cost when in fact the value had enormously decreased was indeed fraudulent. Another said that showing assets at cost instead of at lower market value was not fraud, where the amounts were clearly designated as cost, the court adding: The worst that can be said for it is that it is bad accounting practice. Some accountants might question this judgment. Another judge agreed with the prior decision in holding that where the inventory figures are not reduced for shelfworn and out-of-style goods, the values are untrue and can amount to fraud.

Abstract Although studies have been made investigating the history and development of cost accounting, little attention has been given to the question of the understanding or acceptance of the subject by courts of law. This paper, therefore, summarizes its author's research in attempting to learn what has been the attitude of justice in the U.S., as gleaned from judicial opinions in court decisions, toward the concepts, principles and practices of cost accounting. The study has been limited largely to manufacturing costs, as much work has been done in other fields. Since volumes, for instance, have been written on costs and values in public utility rate-making, that area is not considered here. The definition and delineation of costs in military procurement cost-plus-fixed-fee contracts is not only determined by government regulations, but a satisfactory investigation into such costs has been made. The many court decisions involving the Robinson-Patman Act will only occasionally be referred to herein, as most of them are not truly pertinent to this research.

Reviews the book "Accounting Theory and Practice, Advanced," by Robert R. Milroy, Robert E. Walden and L. Vann Seawell.

Abstract Much attention has recently been given by the public press to the developments in the recent Government anti-trust suit against the DuPont Company and General Motors Corporation. While students of accounting are generally made quite aware of another interesting distinction in the field of corporate distributions, that of the stock dividend versus the stock split, little if any attention is given in accounting literature to their "second cousins," the subjects of this paper. In the stock dividend and the stock split, one is dealing with the problems of increasing the number of outstanding shares of a corporation's own stock. The term "dividend in kind" actually refers to any distribution by a corporation, out of earnings or retained income, of an asset other than money. The income tax treatment of such property dividends in stock, incidentally, presents a seeming paradox which is interesting from an accounting standpoint. When a corporation distributes property as a dividend in kind, its surplus is decreased by an amount equal to the cost of the property.

Abstract This article says that the 1957 revision of the American Accounting Association's "Accounting and Reporting Standards for Corporate Financial Statements" adds force to the revival of an argument that has been called "the old chestnut of accounting," by omitting the statement, found in the 1948 revision, that depreciation reserves should be deducted from the related asset account in the balance sheet. The deduction of the depreciation reserve from plant account can be traced back to the early "direct write-down" method, when the consistent and systematic recording of depreciation was not understood. In years of good earnings, costs of fixed assets were written down by charges to Profit and Loss and direct credits to the fixed asset accounts. No such write-down was done in poor business years. The plant accounts thus showed arbitrary net figures which were neither cost nor value. A more convincing argument perhaps is that the depreciation reserve is not a liability and thus does not belong among the liabilities.

Reviews the book "Business Law-Text and Cases," by Gerald O. Dykstra and Lillian G. Dykstra.

Abstract The trading has hit the retail trades in the U.S. with an impact almost unparalleled in business history. Nearly one out of every two families in the country is collecting these stamps, offered by retailers in return for purchases at their stores, to turn them in for merchandise, premiums, or even cash. In 1956, trading stamps were distributed by over 140,000 retailers throughout the country in conjunction with sales of over thirty billion dollars worth of goods and services. It is therefore surprising to note that, even though these stamps were first issued in 1891, and despite the recent phenomenal growth in their use, they are almost completely ignored in accounting literature. To discover any written clues to the theory and methods of accounting for the stamps, one must turn to the legal decisions which discuss these problems. While the trading stamp comes into legal prominence chiefly through attempts to prohibit, burden with oppressive regulations, or license its use, some of the strongest arguments advanced by those defending the stamp practice are grounded in accounting theory.

Abstract The article discusses the goodwill aspect of valuation of items appearing on the financial statements of a business concern. The definition of goodwill as presented by accountants and the courts have been given consideration. Among them is the definition given by T.H. Sanders, H.R. Hatfield and U. Moore in "A Statement of Accounting Principles," as the excess of the total value of the assets of a going concern over that part of the value which can be allocated to specific assets. All legal cases on the subject agree that the goodwill of a business, though intangible, is property which may be sold as a legitimate asset if it is substantial and may be paid for in capital stock. A cardinal principle in the accounting for goodwill is that it should be shown on the books only when purchased, and then at no more than such purchase price. The article discusses the question whether the cost of extensive advertising, expected to yield benefits for a long period may be capitalized as an asset. It discusses the accounting principle that in transactions the value of goodwill is based on an accurate estimate of prospective net earnings and the amortization of goodwill after its acquisition.

Abstract The principle of valuing current assets in general, and inventories in particular, at "cost or market, whichever is lower" has been thoroughly damned, and still remains "firmly fastened on modem accounting." The fact that it is logically inconsistent, aids in distortion, and is often actually un-conservative, is almost as much neglected by accountants. No one familiar with accounting theory or practice needs to be reminded of the inconsistencies and distortions caused by blind adherence to valuations at the lower of cost or market. Many textbooks advocate, but few companies practice, the reduction to a lower market value by means of a reserve for decline in inventory and a charge to an extraordinary loss, rather than swallowing the reduction in cost of sales. This is recommended in an effort to eliminate the misconceptions and the misleading effect, on the results of the following year, of cost or market valuations. More often, however, the inconsistencies and distortions have been ignored or rationalized because of the supposed need for the application of the rule on conservative grounds.

Abstract More than six years have passed since the Subcommittee on Terminology of the American Institute of Accountants recommended the discontinuance of the term surplus in accounting. This pronouncement has had considerable effect in accounting circles, and a definite trend away from the use of the condemned term can be perceived. It is true the economic meaning of surplus is different from its accounting signification. To the economist, surplus represents unearned income due to the inelasticity of the supply of any productive factor, conceptually more or less the same as the economic rent of land. The literature of both professions contains many articles comparing the dissimilar meanings of homonymic words common to the two disciplines, so that no student of either should be unduly misled by a different signification of the term surplus in the other profession. Certainly the economist has no greater claim to use of the term than has the accountant. With reference to the problem of the inclusion in capital or paid-in surplus of premium paid on capital stock, the major discussion in the legal decisions revolves around whether such premium on stock is available for dividends, each case interpreting the statute of a particular state.