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ATLANTA BALTIMORE BIRMINGHAM BOSTON BUFFALO CHARLOTTE CHATTANOOGA CHICAGO CINCINNATI CLEVELAND DALLAS DENVER DETROIT JACKSONVILLE KANSAS CITY LOS ANGELES MINNEAPOLIS NEWARK NEW ORLEANS NEW YORK PHILADELPHIA HASKINS & S E L LS CERTIFIED PUBLIC ACCOUNTANTS BULLETIN EXECUTIVE OFFICES 15 BROAD STREET, NEW YORK PITTSBURGH PORTLAND PROVIDENCE SAINT LOUIS SAN DIEGO SAN FRANCISCO SEATTLE TULSA WATERTOWN BERLIN LONDON MANILA PARIS SHANGHAI HAVANA MEXICO CITY MONTREAL VOL. XIII NEW YORK, JANUARY, 1930 No. 1 Two Sides 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 question. 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 to bonds. 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 to operations.
Haskins & Sells Bulletin, Vol. 13, no. 01 (1930 January), p. 77
|Source||Originally published by: Haskins & Sells|
|Collection||Deloitte Digital Collection|
|Digital Publisher||University of Mississippi Libraries. Accounting Collection|
|Identifier||hs bulletin 13-p77|