For IMMEDIATE Release Friday, May 20, 1938
SECURITIES AND EXCHANGE COMMISSION
Release No. 8
The S e c u r i t i e s and Exchange Commission today issued an additional
statement in i t s Accounting Series. The statement, r e l a t i n g to the
c r e a t i o n of surplus by appraisal in balance sheets representing the
accounts of promotional companies, follows:
In connection with a r e g i s t r a t i o n statement, an i n d u s t r i a l company
in i t s promotional stages with no record of business or earning capacity,
f i l e d a balance sheet in which Property, Plant and Equipment, acquired in
an arms-length t r a n s a c t i o n at a cost of $200,000, was c a r r i e d at
$720,042.81 which represented i t s "sound value" derived from an independent
appraisal of the estimated "replacement value new l e s s (observed)
d e p r e c i a t i o n " . Thus the balance sheet figure exceeded cost by
$520,042.81, which excess was carried as "surplus arising from revaluat
i o n 6f property".
In the appraisal report filed, the term "sound value" was qualified
by the appraiser as being "The value for use by a going concern having
prospects for the p r o f i t a b l e use, at normal plant capacity, of the prope
r t i e s appraised".
The r e g i s t r a n t was required to amend i t s balance sheet to eliminate
the surplus and to show the fixed assets at cost.