Accounting theory and practice, Volume 2 (of 3) : a textbook for colleges and…
CHAPTER XV
PERMANENT INVESTMENTS
Nature of Permanent Investments
As distinguished from the type of investment discussed in the
preceding chapter, investments of a more or less permanent character
will next claim our attention. These may be permanent in the sense
that at the date of the balance sheet they have a long term to run
before they mature and the expectation is they will be held for a
considerable period of time; or permanency may be indicated because
ownership of the investment is necessary or, at least, a valuable
requisite to operation. Ease of conversion into cash may or may
not be a characteristic of such investments, and certainly it is
not a determining test for valuation as is the case with temporary
investments, discussed in Chapter XIV.
The necessary test is always the condition in which the company would
be placed, viewed from the standpoint of efficient operation, if the
investment were disposed of. If its efficiency or its contracted or
moral obligations would not be impaired, the investment may be said
to be of a temporary character. Examples were given in the previous
chapter. If, however, its efficiency would be materially affected,
or its continuance as a business be hampered or threatened, then the
investment must be considered as of a permanent character. This latter
type of permanent investment will be discussed first, followed by a
consideration of the long-term securities (bonds, stocks, and land)
held as investments for certain funds (such as the building fund, bond
and redemption fund, etc.).
Permanent Investments as an Aid to Operation
These permanent investments may take the form of ownership of the stock
or bonds of other corporations, as in the case of the holding company.
They may represent interests, active or silent, in partnerships; or
they may take the form of advances of working capital or funds to
other concerns. Whatever the form may be, and whether evidenced by
formal securities, collateral, or merely by open book accounts, they
serve the purpose of securing some essential facility without which
operation could not be successfully carried on. A newspaper may secure
full or controlling interest in a paper mill to insure its supply of
print paper; a railway may become a heavy owner in a terminal company
in order to give it terminal facilities; a refinery may purchase a
controlling interest in an oil production company in order to give it a
sure supply of crude oil; etc. Thus, the permanent or fixed investment
is always a means of bringing about the efficient operation of a
business. It may be effected in any one of three ways, 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