Accounting for special reserves arising out of the war;

              Accounting Research
BULLETINS
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Issued by the Committee on Accounting Procedure,
American Institute of Accountants, 13 East 41st Street, New York, N. Y. Copyright 1942 by American Institute of Accountants
January, 1942 No. 13
Accounting (or Special Reserves Arising Out of the War
RESERVES CONSIDERED IN THIS BULLETIN
THE RESERVES considered in this bulletin are limited to those which arc provided as a result of the present war and which would not otherwise be required. While other accounting problems arising out of the war are referred to, the bulletin is primarily concerned with the treatment of such reserves in the financial statements of organizations which are substantially engaged, directly or indirectly, in production for war purposes, or are materially affected by conditions growing out of the war.
SUMMARY STATEMENT
(1) The committee has previously stated in effect1 that it is plainly desirable to provide, by charges in the current income statement, properly classified, for all foreseeable costs and losses applicable against current revenues, to the extent that they can be measured and allocated to fiscal periods with reasonable approximation. In applying this principle to special reserves for war costs and losses, experience during and following the first world war and recent well-defined social trends should be taken into account.
The charges for which the reserves have previously been created should be applied against the appropriate reserves, and any unused portion thereof should be dealt with in accordance with general practice relating to corrections of estimates made in prior years.1
(2) Where reserves are created for possible war costs and losses the amount of which is not presently determinable and which do not come within paragraph (1), the committee suggests that the pro-vision be shown in the income statement as a deduction from the income for the period computed on the usual basis. The purpose and amount of such reserves should be shown as clearly as possible in the financial statements.
When the costs and losses of this nature are later determined they should be brought into the income statement, but it is desirable that
1 Accounting Research Bulletin No. 8.