Ford, Ruth C.

English

eGrove (Univ. of Mississippi)

Woman C.P.A. Volume 13 Issue 1 Article 7 12-1950 What's New in Reading Ruth C. Ford Follow this and additional works at: https://egrove.olemiss.edu/wcpa  Part of the Accounting Commons, and the Women's Studies Commons Recommended Citation Ford, Ruth C. (1950) "What's New in Reading," Woman C.P.A.: Vol. 13 : Iss. 1 , Article 7. Available at: https://egrove.olemiss.edu/wcpa/vol13/iss1/7 This Article is brought to you for free and open access by the Archival Digital Accounting Collection at eGrove. It has been accepted for inclusion in Woman C.P.A. by an authorized editor of eGrove. For more information, please contact egrove@olemiss.edu. WHAT'S NEW IN READINGRUTH C. FORD, CPA, Columbus, OhioFIVE MONOGRAPHS ON BUSINESS INCOME by Sidney S. Alexander, Martin Bronfenbrenner, Solomon Fabricant and Clark Warburton (economists), discussion by the Study Group on Business Income and a paper by George 0. May, published by the Study Group on Business Income of the American Institute of Accountants.Sidney S. Alexander, presently on the economic staff of the International Mone­tary Fund, analyzes the income concept from a theoretical point of view and com­pares the result of that analysis with the concept of income as conventionally meas­ured by accountants with the conclusion that if price levels did not change there would be no difference between the two con­cepts.The discussion points out that when prices fluctuate, the accountant’s practice of basing depreciation on historical cost rather than replacement value and of ab­sorbing inventories into operations at cost rather than replacement value produces a mixed income, pure economic income, or sales profit, and price gains on items charged to cost of goods sold. The inclusion of the latter type of gains in income will not main­tain capital intact. The discussion of the practical application of these theories to present business problems leads Mr. Alex­ander to the conclusion that while account­ants’ procedures do accord separate treat­ment of capital gains on assets sold out of the normal course of business, they do not recognize capital gains on inventories and on other assets which are eventually charged to cost and are confounded with normal income.Martin Bronfenbrenner, presently with General MacArthur’s Staff in Japan, on loan from the University of Wisconsin, views “Business Income in the Light of Monetary Theory.” The long-term upward price trend which is being forecast rep­resents a resumption of the movement which can be traced back to antiquity. Mr. Bronfenbrenner describes its effect on the economy of the various nations of the world in the past and particularly on the present economy of the United States. He discusses the effect of the policy of the present Administration of guaranteeing full employment and production; the ef­fect of collective bargaining of labor unions; unemployment inflation, stagna­tion and underconsumption.Mr. Bronfenbrenner discusses the Meas­urement of Business Income Under Rising Prices, emphasizing the controversy be­tween matching sales by transfers of in­ventory at prices representing replace­ment value of inventories sold (LIFO) or on the basis of earliest cost (FIFO) and the related problem of stating deprecia­tion on the basis of replacement cost or on historic cost. He proposes a practical means of dealing with the situation which may eventually meet with the approval of business, tax authorities, the leaders of labor and the consuming public, all hing­ing on the acceptance by the professional accountant. The concept of income pres­ently maintained by the accounting pro­fession results in a lack of provision for the increased cost of replacing inventories and capital instruments. A continuing business concept provides for the mainte­nance of capital intact. It is estimated that corporate profits were overstated twenty- five per cent over the three-year period 1946 to 1948, on the basis of eliminating the capital impairment which was in­cluded as income.Solomon Fabricant, Professor of Eco­nomics at New York University and a member of the Study Group views Busi­ness Costs and Business Income Under Changing Price Levels, from the stand­point of translating business income into real income. To compare the profits of years of various price levels the economist developed first the price index which is in common use. When the inventory has in­creased during the year, the economist considers the increase in capital to be the increase in units and does not consider that the increase in value of the number of units owned at the beginning of the year represents a real accretion in wealth. The economist method of adjustment in­sures that no inventory revaluation will be left in the income account to over or understate business income. With the ob­jective to relate costs to revenues the economist does not stop with materials that come out of inventory but carries on to depreciation and depletion which are adjusted in the same way, absorbing capi­tal assets into cost of production on the basis of current prices rather than origi­nal cost.Mr. Fabricant also looks at The Varied Impact of Inflation on the Calculation of 14Business Income. He reminds accountants that although they do not allow ordinary revaluation of assets to get into the in­come accounts, that they are really doing the same thing by the indirect process of turnover of assets during inflation. As a result the ordinary business accounts pro­vide an exaggerated notion of business profits when prices are going up. In 1947 the upward inventory revaluation ac­counted for five billion dollars of the eighteen billion of corporate profits after tax according to the Department of Com­merce.Clark Warburton, an economist with the Federal Deposit Insurance Corporation and a member of the group, in viewing Monetary Theory and the Price Level Trend in the Future disagrees with Mr. Bronfenbrenner that a long-term trend of rising prices is inevitable and believes that there is enough knowledge and power to push the price level, as a matter of de­liberate national policy, in either direc­tion or to maintain a reasonable degree of stability. He outlines a different con­cept of the scope and character of mone­tary theory on the economic history of the world. He traces the causes of booms and depressions and expresses the belief that with the present knowledge of monetary controls there need not be extreme depres­sions.Mr. Warburton advocates the construc­tion of a more comprehensive index of prices of the final products of the econ­omy, after which industry should make approximations of the difference between the costs and the replacements of its prop­erties, equipment and inventories and the accounts be adjusted for the differences. He believes once this is accomplished that the Bureau of Internal Revenue will agree to the adjustments for tax purposes.The final chapter by George 0. May pre­sents The Case Against Change in Pres­ent Methods of Accounting for Exhaus­tion of Business Property. He believes that accounting procedures should not be revised so as to bring the cost of property exhaustion into account at approximately the same price levels as the revenues and that the situation should be met by sup­plementary information, assuming social usefulness to be the objective.In view of the many vital problems fac­ing the accounting profession today it is argued that this problem which is dimin­ishing in importance as the postwar years increase, can be set aside especially be­cause economic profits of the past three years have been high enough to insure that no serious economic or financial harm has resulted from continuance of old ac­counting methods up to now.Mr. May submits that the evidence indi­cates that the option to use the LIFO method has not resulted in treatments best adapted to the business and that a similar option in accounting for property exhaustion would have a similar result. Evidence is found also to support the ar­gument that there have always been fluc­tuations in the value of money and that business men have traditionally acted upon the assumption that the value of the mone­tary unit was stable, although they knew this to be contrary to fact. He supports his argument by quotations from well known authorities.This book is distributed to members of the Institute, any of whom will be glad to loan it to you if copies are not available from the American Institute of Account­ants.STATEMENT OF THE OWNERSHIP, MANAGEMENT, AND CIRCULATION REQUIRED BY THE ACT OF CONGRESS OF AUGUST 24, 1912, AS AMENDED BY THE ACTS OFMARCH 3, 1933, AND JULY 2, 1946Of THE WOMAN C.P.A., published bi-monthly at New York, N. Y., for October 1, 1950.1. The names and addresses of the publisher, editor, managing editor, and business managers are: Publisher, American Woman’s Society of Certified Public Accountants and American Society of Women Accountants, 342 Madison Avenue, New York 17, N. Y.Editor, Helen F. McGillicuddy, 656 Aldine Avenue, Chicago 13, Illinois.Managing editor, None.Business manager, Helen Lord, 342 Madison Avenue, New York 17, N. Y.2. The owner is:American Woman’s Society of Certified Public Accountants (a non-stock corporation), Pres., Edith Moore; Vice-Pres., Jean D. Colavecchio, 342 Madison Avenue, New York 17, N. Y.American Society of Women Accountants (a non-stock organization), Pres., Grace A. Dimmer; Vice- Pres., Vera J. Bobsene, 342 Madison Avenue, New York 17, N. Y.3. The known bondholders, mortgagees, and other security holders owning or holding 1 percent or more of total amount of bonds, mortgages, or other securities are: None.4. Paragraphs 2 and 3 include, in cases where the stockholder or security holder appears upon the books, of the company as trustee or in any other fiduciary relation, the name of the person or corporation for whom such trustee is acting; also the statements in the two paragraphs show the affiant’s full knowledge and belief as to the circumstances and conditions under which stockholders and security holders who do not appear upon the books of the company as trustees, hold stock and securities in a capacity other than that of a bona fide owner. 'HELEN LORD, Business ManagerSworn to and subscribed before me this 29th day of September, 1950. Elisabeth J. Rubino[SEAL] (My commission expires March 30. 1951)15

What\u27s New in Reading

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What\u27s New in Reading

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