Emergency facilities;

              Accounting Research
BULLETINS
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Issued by the Committee on Accounting Procedure, American Institute of Accountants, 13 East 41st Street, New York 17, N. Y.
Copyright 1946 by American institute of Accountants
November, 1946 No. 27 Emergency Facilities
1. During the war period, many companies acquired productive facilities under certificates of necessity issued pursuant to section 124 of the Internal Revenue Code. These certificates, covering "emergency facilities" considered essential to the war effort, per-mitted the owner of the facilities to amortize their cost for income-tax purposes over a period of 60 months, or, under certain conditions, over a shorter period. An Executive Order proclaiming the end of the emergency period, for purposes of the section of the Internal Revenue Code relating to the amortization of facilities acquired under certificates of necessity, was issued on September 29, 1945. By the provisions of the Code, the previously unamortized cost of emer-gency facilities at September 29, 1945, thus became deductible for tax purposes over the periods of their use ending at that time.
2. The financial statements of industrial companies issued during the war period show that many companies acquiring emergency facilities depreciated or amortized their costs at rates permitted for tax purposes. Statements issued since September 29, 1945, show that additional accelerated depreciation or amortization of those facilities, as permitted for tax purposes, has been recorded by many such com-panies. The committee has studied this accounting treatment of the cost of emergency facilities and has considered the problems arising therefrom. As a result of this study the committee has concluded that the conventions and practices of accounting for productive assets under ordinary business and economic conditions are not wholly applicable to these problems, and that special adjustments of past accounting for emergency facilities may in some cases make possible the preparation of more useful and significant financial statements.
3. The cost of a productive facility represents the cost of the series of services to be derived from its use, and accepted accounting practice dictates that such cost should be matched against the reve-nues obtained from the services. This matching of expenses and revenues is effected by the procedures of depreciation accounting, "a system of accounting which aims to distribute the cost or other basic value of tangible capital assets, less salvage (if any), over the estimated useful life of the unit (which may be a group of assets) in
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