HASKINS & S E L LS
CERTIFIED PUBLIC ACCOUNTANTS
BULLETIN EXECUTIVE OFFICES
15 BROAD STREET, NEW YORK
VOL. XIII NEW YORK, JANUARY, 1930 No. 1
T H E formulation of principles for the
guidance of rational accounting is attended
with difficulties because of the
axiom that there are two sides to every
No subject better illustrates this difficulty
than the subject of appreciation.
The problem which it presents is one of the
most troublesome extant.
For taxing purposes, the United States
government does not recognize appreciation
as income until the increase in value
has been realized.
For taxing purposes, Great Britain does
not recognize appreciation as income even
when realized, holding that realization is
but the conversion of a capital asset from
one form to another.
For valuation purposes, the Interstate
Commerce Commission uses investment
cost as a basis, arguing that it is capital
invested which must be maintained intact.
For valuation purposes, the United
States Supreme Court has tended to support
replacement cost, influenced, apparently,
by the thought that the conditions
surrounding eminent domain govern the
question, and that it is property, not the
cost of the property, of which the involuntary
grantor is deprived.
For depreciation purposes, one school of
thought insists that depreciation on appreciation
is chargeable to operations, inasmuch
as the replacement cost of the property
units must be recovered.
For depreciation purposes another school
of thought holds that the charge for depreciation
on appreciation should be offset by
a credit from unrealized appreciation, thus
nullifying the effect on operations.
For borrowing purposes, the tendency is
to concede replacement cost as a basis of
value from which to determine the amount
which the property will justify.
For statement purposes, that is, with respect
to profit and loss, the tendency is to
say, "Before depreciation and taxes," particularly
where the earning power relates
Before a satisfactory answer is found to
the highly controversial question of how
to treat appreciation in accounts, it is likely
that appreciation will have to be more
carefully defined than at present.
It is not unlikely that appreciation will
be attributed to increased productivity of
capital, not to value in exchange, and not
to a rising price level.
If the first premise is found to be true,
apparently there will be no inconsistency
in charging depreciation on appreciation