Accounting theory and practice, Volume 2 (of 3) : a textbook for colleges and…
4. There may be no record of the sinking fund transactions shown on
the balance sheet. This might come about through the cancellation of
some portion of the debt by the conversion of assets. The balance
sheet, except by comparative analysis, carries no indication of the way
in which it is accomplished. It may be that it is being done at the
expense of current activities—a poor policy—or through the withholding
of owners’ profits. The balance sheet is non-committal.
Whatever method indicates the policy being followed with regard to the
sinking fund is the one which should be employed. So far as possible
indefiniteness of expression as well as nomenclature should be avoided;
not only does an indefinite statement fail to show the policy but it
may be misleading.
The Sinking Fund on the Balance Sheet
In drawing up the balance sheet, the sinking fund assets usually
appear under the caption “Investment of Sinking and Other Funds.”
Occasionally one finds the Sinking Fund account treated as a
debit valuation account, being shown as a deduction from the Bond
account. Such treatment indicates the amount of bonded indebtedness
not yet provided for by the sinking fund—an item of hardly enough
importance to justify its separate showing, particularly when an easy
comparison, under any other method, will give the same information.
The cancellation of assets against liabilities or of liabilities
against assets is not good accounting practice. Where, however, the
trust agreement provides for the investment of the sinking fund cash
in the company’s own bonds and the cancellation of these bonds as
purchased instead of holding them in the fund for the sake of their
income accretions, the bonds so canceled would, of course, be deducted
from the amount previously outstanding and only the present liability
for bonds be shown. There is no objection to showing this deduction on
the face of each balance sheet, as it thus shows the amount redeemed
during the current period. If the company’s own bonds are purchased but
kept live, it is better to show the sinking fund among the assets. All
sinking fund _reserves_ should, of course, be listed in the net worth
section of the balance sheet.
Entries to Sinking Fund
Accounting for the sinking fund presents nothing new in principle.
There are, in the main, three kinds of entries to be made, viz.:
Chapters
- Chapter 1 Ch.1
- Introduction of System Ch.2
- 1. PROPORTIONAL METHODS Ch.3
- 2. VARIABLE PERCENTAGE METHODS Ch.4
- 3. COMPOUND INTEREST METHODS Ch.5
- 4. MISCELLANEOUS METHODS Ch.6
- 1. PROPORTIONAL METHODS Ch.7
- 2. VARIABLE PERCENTAGE METHODS Ch.8
- 3. COMPOUND INTEREST METHODS Ch.9
- 4. MISCELLANEOUS METHODS Ch.10
- Introduction Ch.11
- Introduction Ch.12
- CHAPTER I Ch.13
- 5. Debenture Ch.14
- CHAPTER II Ch.15
- Introduction of System Ch.16
- Chapter XXXVI, a cash discount is usually treated as a financial Ch.17
- 6. Indexing vouchers. Ch.18
- 4. It localizes responsibility by showing authority for Ch.19
- 5. It secures a receipted bill for all disbursements of cash. Ch.20
- 1. Clumsy provision for returns and allowances, partial Ch.21
- 3. The giving out of information about the business Ch.22
- CHAPTER III Ch.23
- CHAPTER IV Ch.24
- 2. Deferred Charges to | 2. Deferred Income Ch.25
- 5. Fixed Assets | Ch.26
- 4. For publication or report to regulating or Ch.27
- 6. For advertising purposes to float new issues Ch.28
- CHAPTER V Ch.29
- 12. Liquidation or forced-sale value, etc. Ch.30
- 1. For the current assets, the principle of valuation may be stated Ch.31
- 2. The principle of valuation involved in deferred charges to operation Ch.32
- 3. For the fixed assets, the principle of valuation generally Ch.33
- CHAPTER VI Ch.34
- 2. The managerial policy as to repairs, maintenance, Ch.35
- 3. The past performance and expected future performance Ch.36
- 4. All other factors locally present which may affect Ch.37
- Chapter XIII.) Ch.38
- CHAPTER VII Ch.39
- 5. Crystallization[25] Ch.40
- CHAPTER VIII Ch.41
- 2. Rates of depreciation and their relation to repairs, Ch.42
- 5. Financing depreciation and some related problems. Ch.43
- Chapter IX. Ch.44
- 4. Normal climatic conditions. Ch.45
- 5. Probable misuse and neglect brought about by the Ch.46
- 6. Probable change in ownership and consequent Ch.47
- 7. Probable change in the requirements of the market, Ch.48
- 2. Installed operating and generating machinery Ch.49
- 3. Fixed equipment including boilers and piping Ch.50
- Chapter X of the effect of the various methods used for calculating Ch.51
- CHAPTER IX Ch.52
- 4. Miscellaneous Methods Ch.53
- 4. Under some methods, an arbitrary interest rate Ch.54
- 1. PROPORTIONAL METHODS Ch.55
- 2. VARIABLE PERCENTAGE METHODS Ch.56
- 3. COMPOUND INTEREST METHODS Ch.57
- 4. MISCELLANEOUS METHODS Ch.58
- CHAPTER X Ch.59
- 2. Inadequacy, which is lack of capacity to do the Ch.60
- 3. Obsolescence, which represents the inability to Ch.61
- 1. PROPORTIONAL METHODS Ch.62
- 2. VARIABLE PERCENTAGE METHODS Ch.63
- 3. COMPOUND INTEREST METHODS Ch.64
- 4. MISCELLANEOUS METHODS Ch.65
- Chapter XI. Ch.66
- CHAPTER XI Ch.67
- 2. Estimate of life in periods, working hours, service Ch.68
- 5. Periodic appraisal value. Ch.69
- 3. Profits of the past may be reserved in the business Ch.70
- CHAPTER XII Ch.71
- Introduction Ch.72
- 4. Bank Ch.73
- 1. Cash deposited to cover breakage or damage to Ch.74
- 2. Moneys advanced to subsidiaries, salesmen, and other Ch.75
- 3. Claims against creditors for returned or damaged Ch.76
- 4. Prepayments on purchase or expense contracts, as Ch.77
- 5. Unpaid calls or instalments on stock subscription Ch.78
- 6. Claims against absconding officers for property Ch.79
- 1. In the case of a new concern where there is no past Ch.80
- 2. In the case of an outsider—a professional auditor Ch.81
- 3. Periodically, in any business, as a check on the Ch.82
- 1. The amount of outstanding trade debt at the time Ch.83
- 2. The amount of sales on credit made during the Ch.84
- 3. The total sales, both cash and credit, for the present Ch.85
- CHAPTER XIII Ch.86
- 1. Carry the market valuation, whether more or less Ch.87
- 2. In case market value is less than cost, set up a reserve Ch.88
- 3. Carry in an inner column in the body of the balance Ch.89
- Chapter XXVI of this book, where a full presentation of the case for Ch.90
- CHAPTER XIV Ch.91
- CHAPTER XV Ch.92
- 1. By practically full ownership of the subsidiary Ch.93
- 3. Through the agency of advances, particularly when, Ch.94
- CHAPTER XVI Ch.95
- Chapter IX, is the one most widely employed. It is to be preferred to Ch.96
- CHAPTER XVII Ch.97
- 1. If the building is purchased outright for cash, whatever costs Ch.98
- 2. If the building is bought by the issue of stocks or bonds, the Ch.99
- 3. When buildings are put up by the concern itself, full cost may Ch.100
- Chapter XVI, any increase or decrease in the value of the land cannot Ch.101
- CHAPTER XVIII Ch.102
- 1. _Time Lapse._ There is no such thing as wear and tear on a patent Ch.103
- 2. _Supersession._ If no other causes than time lapse were operative, Ch.104
- 3. _Obsolescence._ Akin to the element of supersession is that of Ch.105
- 1. Lump sum payments to the state or some division Ch.106
- 2. The full purchase price paid another company for Ch.107
- 3. Legal and other fees in connection with securing Ch.108
- 4. Any other legitimate expenses, such as the cost of Ch.109
- CHAPTER XIX Ch.110
- 6. Merchandise Inventory Ch.111
- Chapter XX, in the discussion of the liability, bonds. Ch.112
- CHAPTER XX Ch.113
- 1. The character of the issuing corporation under Ch.114
- 2. The security of the bonds under which come: Ch.115
- 3. The purpose of the issue, as: Ch.116
- 4. The conditions incident upon payment of principal Ch.117
- 4. A bond sold at par to be redeemed at a premium on maturity. Ch.118
- CHAPTER XXI Ch.119
- CHAPTER XXII Ch.120
- 2. Profits realized on sales of fixed assets should be first applied Ch.121
- 3. A sufficient surplus should be accumulated (in addition to the Ch.122
- CHAPTER XXIII Ch.123
- Chapter XXII, have their proper place of record direct into some margin Ch.124
- Chapter XXV on sinking funds for a full discussion of the merits and Ch.125
- 2. Reserves created to provide an additional capital Ch.126
- 3. Reserves created to provide for equalizing dividends Ch.127
- 1. Valuation Reserves Ch.128
- 5. Market Fluctuations Reserves, etc. Ch.129
- 2. Proprietorship Reserves Ch.130
- 3. Reserves for Working Capital, etc. Ch.131
- CHAPTER XXIV Ch.132
- Introduction Ch.133
- CHAPTER XXV Ch.134
- 1. The sinking fund, then, under suitable title, may appear only among Ch.135
- 2. The balance sheet may record the sinking fund status among the Ch.136
- 3. There may appear on the balance sheet as the only evidence of a Ch.137
- 4. There may be no record of the sinking fund transactions shown on Ch.138
- 1. Those dealing with the original and subsequent Ch.139
- 2. Those required to book the trustee’s periodic Ch.140
- 3. Those to show the redemption of the debt and the final Ch.141
- CHAPTER XXVI Ch.142
- 1. The difficulty of determining the rate at which Ch.143
- 2. Inasmuch as the amount of investment in current Ch.144
- 3. If interest is to be charged, how shall the offsetting Ch.145
- 4. The introduction in production costs of a more or Ch.146
- 5. As the business world is accustomed to consider Ch.147
- CHAPTER XXVII Ch.148
- Chapter XXIII on “Reserves and Surplus.” There the illegitimate use of Ch.149
- CHAPTER XXVIII Ch.150
- 1. To convey, transfer, conceal, or remove, or to permit Ch.151
- 2. To transfer while insolvent any portion of the property Ch.152
- 3. To make a general assignment for the benefit of Ch.153
- 4. For the debtor to admit in writing his inability to Ch.154
- 5. To suffer or permit, while insolvent, any creditor to Ch.155
- 1898. The courts of the Federal Government have jurisdiction in these Ch.156
- CHAPTER XXIX Ch.157
- 1. Agreement by the directors of the various companies Ch.158
- 2. Assent of the stockholders of each company to the Ch.159
- 3. Filing of certified copies of the agreement, with the Ch.160
- 4. The exchange and issuance of new stock for the Ch.161
- 1. A uniform accounting system for all the companies Ch.162
- 2. The reserves for depreciation should be based on Ch.163
- 3. Costs should be determined in the same way if the Ch.164
- 4. The apportionment of labor, factory expense, and Ch.165
- 5. Only real items of cost should be included under the Ch.166
- 6. The same methods of inventory-taking, both of Ch.167
- 7. The amount of orders on hand should be considered. Ch.168
- CHAPTER XXX Ch.169
- 2. A proper rate of turnover on the merchandise Ch.170
- 3. Economical management. Ch.171
- 3. Facilities for centralizing and comparing such Ch.172