This article presents comments of the author on the article "Present Value Models and the Multi-Asset Problem," by Richard P. Brief and Joel Owen, published in the October 1973 issue of the journal "The Accounting Review." The main conclusion of the article was that the internal rate of return (IRR) is essentially a firm model, not a single-asset model. A corollary of this conclusion is that the appropriate discount rate to use in present-value depreciation models is not the IRR on each individual asset, but the overall IRR on a firm's total portfolio of assets, even where the returns on a particular asset are independent of the firm's other assets. The basic premise implicit in Brief and Owen's analysis is that the accounting model should generate expected periodic income figures that would enable firms to report periodic rates of return on book value equal to the expected IRR on the firm's total portfolio of assets at any point in time. The internal rate of return is commonly defined as the discount rate that causes the present value of cash receipts from an investment over its life to equal the present value of cash outlays related to the investment. Present value methods, in general, are designed as direct valuation models, while the accounting model explicitly recognizes only values that have been verified by exchange transactions.

The article discusses stationarity economic problems associated with the use of market model of security price behavior. A table presented in the article indicates the percentages of variance in the logarithms of monthly price relatives for 94 stocks. The findings indicates that the signs or magnitudes of residuals are caused by any factors other than a poorly specified model. The authors of the article did not intent to suggest that the use of the market model in measuring the effect of accounting numbers on individual stock prices should be abandoned.

The article focuses on the source of the conflict between present-value depreciation and interperiod tax allocation techniques for determining balance sheet values in accounting practice. A major portion of the controversy over the appropriate treatment of income taxes in accounting results from disagreement on the nature of income taxes. Even if one accepts the unproven assumption that income taxes are an expense, the question of the relationship between income taxes and asset valuation remains to be answered. Supporters of tax allocation, on the other hand, regard asset valuation and income tax accounting as separate problems. The impact of income taxes during a specific accounting period should be measured by the amount of tax which will be paid on income earned and reported during that period, regardless of when the taxes are paid. The article concludes that the basic benefits associated with present-value depreciation can be realized under existing tax laws and accepted methods of accounting for income taxes if annual depreciation charges are based on pre-tax income streams.

Reviews the book "Introduction to Financial Accounting," by Levis D. McCullers and Relmond P. Van Daniker.

Reviews the book "Managerial Accounting," by Joseph G. Louderback and Geraldine F. Dominiak.