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J O E J . C R A M E R , J R . A N D W I L L I A M J . S C t l R A I ) I / R

8 6

i n v e s t m e n t . ( E a c h o f t h e s e f a c t o r s a s i t r e l a t e s

t o a c c o u n t i n g f o r t h e i n v e s t m e n t c r e d i t w i l l b e

eva lua ted in th i s d i s cus s ion . )

T h e r e i s s u b s t a n t i a l a u t h o r i t a t i v e s u p p o r t

f o r t h e s e t w o c o n f l i c t i n g a l t e r n a ti v e s . 2 T h e

firs t , the deferral method i s spec i f i ed in AP B

Opinion No. 2 a n d i n d i c a t e s t h a t t h e a l lo w a b l e

i n v e s t m e n t c r e d i t s h o u l d b e r e f le c t e d in i n c o m e

o v e r t h e p r o d u c t i v e l i f e o f ac q u i r e d p r o p e r t y

a n d n o t i n t h e y e a r i n w h i c h i t is p l a c e d i n t o

s e r v i c e . W i t h r e sp e c t t o i ts e f f e c t o n m e a s u r e -

m e n t o f t ax e x p e n s e , t h e b o a r d c o m m e n t e d a s

f o l lo w s : I n o u r v i e w t h e r e l e v a n t m a t e r i a l s

s u p p o r t t h e i n t e r p r e t a t i o n t h a t t h e i n v e s t m e n t

c r e d i t i s a n a d m i n i s t r a t i v e p r o c e d u r e t o p e r m i t

t h e t a x p a y e r t o w i t h h o l d t h e c a s h e q u i v a l e n t o f

t h e c r e d i t f r o m t a x e s o t h e r w i s e p a y a b l e a n d

t h a t i t i s n o t a n e l e m e n t e n t e r i n g i n t o t h e

c o m p u t a t i o n o f t a x e s r e l at e d t o i n c o m e o f th e

p e r i o d . F u r t h e r , t h e b o a r d v ie w e d t h e s u b -

s t a n ce o f th e i n v e s t m e n t c r e d i t as a r e d u c t i o n

in cos t o the rwise cha rgeab le in a g rea te r

a m o u n t t o fu t u r e ac c o u n t in g p e r i o d s a n d

i n t e r p r e t e d i t a s a r e d u c t i o n o r o f f s e t a g a i n s t

the bas i s o f qua l i fy ing a s se t s . I t i s p re sum ed

t h a t t h e s p i ri t o f t h e b o a r d ' s i n t e n t w a s t h a t

non regu la ted b us ines s en t i t i e s use th i s a l t e rna -

t i v e i n r e p o r t i n g t o s h a r e h o l d e rs .

U n f o r t u n a t e l y , t h e s e c o n d a l t e r n a t i v e i s

a l s o c o n t a i n e d i n A P B Opinion No. 2. I t w a s

a p p a r e n t l y i n t e n d e d b y t h e b o a r d t o b e l im i t e d

to regu la ted indus t r i e s , an d i t s app l ica t ion to

nonregula ted en t i t i e s i s im pl ic i t in na tu re . Th i s

a l t e r n a t i v e - o f w h i c h t h e r e a r e v a r i a t i o n s - i s

c o m m o n l y c h a r a c t e r i z e d a s t h e flow-through to

income method.

U n d e r o n e a p p r o a c h , 4 8 p e r -

c e n t o f t h e c r e d i t i s r e f l e c t e d i n i n c o m e d u r i n g

t h e y e a r o f a c q u i si t io n , a n d t h e r e m a i n i n g 5 2

p e r c e n t i s d e f e r r e d t o s u b s e q u e n t a c c o u n t i n g

p e r i o d s d u r i n g w h i c h d e p r e c i a t i o n a l l o w a n c e s

f o r t a x p u r p o s e s a r e r e d u c e d b e c a u s e t h e

s t a t u t o r y r e q u i r e m e n t r e d u c e s t h e b a si s o f th e

p r o p e r t y f o r t a x p u r p o s e s b y t h e a m o u n t o f th e

2 . T h e a l t e r n a t i v e t r e a t m e n t s a re d e s c r i b e d i n

A P B

O p i n i o n N o . 2

a n d

O p i n i o n N o . 4

a n d S e c u r i t ie s

a n d E x c h a n g e A c c o u n t i n g S e r ie s R e le a s e N o . 9 6 ( J a n .

1 0 , I 9 6 3 ) . A l l b e a r t h e t it l e A c c o u n t i n g f o r t h e

' I n v e s t m e n t C r e d i t .

i n v e s t m e n t c r e d i t . T h i s a d j u s t m e n t t o th e b a si s

of a s se t s was e l im ina ted in 1964 . 3 In e i th e r

c a s e, l o g ic a l a c c o u n t i n g m e a s u r e m e n t o f a ss e ts

s h o u l d b e i n d e p e n d e n t o f t a x r e g u l a t i o n s .

E x p e r i e n c e o f m a n y .c o m p a n i e s t h a t u t i l iz e t h e

i n t e r p e r i o d i n c o m e t a x a l l o c a t i o n p r o c e d u r e

va l ida te s th i s obse rva t ion .

T h e d e f e r r a l m e t h o d m e t w i t h s u c h

d i v er s it y o f o p i n i o n a m o n g m e m b e r s o f th e

a c c o u n t i n g p r o f e s s i o n t h a t t h e S e c u r i ti e s a n d

E x c h a n g e C o m m i s s i o n ( S E C ) c o n d o n e d b o t h

a l t e rna t ives in Accounting Series Release No.

96 f o r a p p l i c a t i o n t o n o n r e g u l a t e d e n t i t i e s .

M o r e n o t e w o r t h y i s t h e f a c t t h a t t h e i n d e c is i v e-

n e s s o f t h e a c c o u n t i n g p r o f e s s i o n n o t o n l y

i n f l u e n c e d t h e S E C t o a c c e p t b o t h a l t e r n a t i v e s

b u t a l so t o a c c e p t q u a l if i e d o p i n i o n s o f a c c o u n -

t a n t s w h o d e p a r t f r o m t h e p r e f e r r e d c o n c l u s i o n

o f A P B Opinion No. 2 ( t h e d e f e r r a l m e t h o d ) .

Opinion No. 4 a m e n d i n g N o . 2 w a s i s s u e d i n

M a r c h , 1 9 6 4 , a f t e r t h e S E C p r o n o u n c e m e n t . I t

s t a te s tha t :

The Board , in l igh t o f even t s and deve lop-

m e n t s o c c u r r i n g s i n c e t h e i s s u a n c e o f O p i n i o n

N o . 2 , h a s d e t e r m i n e d t h a t i t s c o n c l u s i o n s a s

t h e r e e x p r e s s e d h a v e n o t a t t a i n e d t h e d e g r e e o f

accep tab i l i ty which i t be l i eves i s neces sa ry to

m a k e t h e O p i n i o n e f f e c t i v e .

I n t h e c i r c u m s t a n c e s t h e B o a r d b e l i e v e s

t h a t , w h i l e t h e m e t h o d o f a c c o u n t i n g f o r t h e

i n v e s tm e n t cr e d it r e c o m m e n d e d i n . . . O p i n i o n

2 s h o u l d b e c o n s i d e r e d t o b e p r e f e r a b l e , t h e

a l t e r n a ti v e m e t h o d o f t r e a t in g t h e c r e d i t a s a

r e d u c t i o n o f F e d e r al i n c o m e t a x e s o f th e y e a r

in which th e c red i t a r i s e s i s accep tab le .

O n e c a n o n l y c o n j e c tu r e w h e t h e r t h e S E C

was pr im ar i ly re spons ib le fo r the c red ib i l i ty gap

i n i n f o r m a t i v e f i n a n c i a l d i s c l o s u r e p r o d u c e d b y

a l t e r n a t i v e t r e a t m e n t s o f t h e i n v e s t m e n t t a x

c red i t , s ince the subs tan t i a l d ive rs i ty o f op in ion

w i t h i n t h e a c c o u n t i n g p r o f e s s i o n m a y h a v e

p r o d u c e d t h e s a m e e f f e c t . T h u s , t h e c o n t r o v e r -

s ia l n a t u r e o f t h e a c c o u n t i n g p r o b l e m s p o s e d b y

t h e i n v e s t m e n t c r e d i t r e s u lt e d i n a c o m p r o m i s e

i n t h e n o t i o n o f g e n e r a l a c c e p t a b i l i t y a n d

s u b s t a n t i a l a u t h o r i t a t i v e s u p p o r t .

3 . A c c o u n t i n g S e r ie s R e l e a s e N o . 9 6 p , 2 . S e e

f o o t n o t e 4 .

B U S I N E S S H O R I Z O N S

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T h e I n v e s t m e n t T a x C r e d i t

E V A L U A T I O N O F A L T E R N A T I V E S

O n e o f t h e n e c e s sa r y r e q u i r e m e n t s o f c o n t e m -

p o r a r y a c c o u n t i n g p r a c t i c e , w h i c h s e r v e s a s a

f r a m e o f r e f e r e n c e f o r t h e a d m i s s ib i l i ty o f d a t a

t o t h e a c c o u n t s , i s t h a t t h e e n t i t y e x p e r i e n c e a n

e x c h a n g e t r a n s a c t i o n ( c h a r a c t e r i z e d b y a r e c i p -

r o c a l f l o w o f c o n s i d e r a t i o n ) . W i t h r a r e e x c e p -

t i o n s ( t r a c e a b l e t o t h e u n d e s i r a b l e d o c t r i n e o f

c o n s e r v a t i s m , p e r h ap s ), th e t r a ns a ct io n s

a p p r o a c h t o t h e p r o c es s in g o f a c c o u n t i n g d a t a

i s f o l l o w e d b y a c c o u n t i n g p r a c t i t i o n e r s . C o n s e -

q u e n t l y , p r o p e r a c c o u n t i n g p r o c e d u r e f o r t h e

i n v e s t m e n t t a x c r e d i t m u s t b e d e l i n e a t e d b y

r e f e r e n c e t o t h e p r e c i s e n a t u r e o f t h e p a r t i c u l a r

e x c h a n g e t r a n s a c t i o n f r o m w h i c h i t r e s u lt s .

A n a t o m y o f t h e I n v e s t m e n t T a x C r e d it

T h e i n v e s t m e n t c r e d i t a r i s e s f r o m a n e x c h a n g e

t r a n s a c t i o n b e t w e e n t h e e n t i t y a n d t h e g o v e r n -

m e n t . I n e x c h a n g e f o r t h e a c q u i s i t i o n o f q u a li -

f y i n g a ss e ts b y t h e e n t i t y a n d i t s i n t e n t i o n t o

h o l d t h e m f o r a s p e c i f i e d t i m e p e r i o d , t h e

g o v e r n m e n t p r o v i d e s t h e e n t i t y w i t h a f i n a n c i a l

s u b s i d y o r i n v e s t m e n t a l l o w a n c e . E s s e n t i a l l y ,

t h e s u b s i d y a s s u m e s t h e f o r m o f a r e d u c t i o n i n

t h e t a x o b l i g a t i o n o f t h e e n t i t y d u r i n g t h e

l e g i s l a t i v e l y d e f i n e d p e r i o d a c c e p t e d b y b o t h

p a r t i e s a s c o n s i d e r a t i o n s a t i s f y i n g t h e i m p l i c i t

c o n t r a c t .

T h e i n v e s t m e n t c r e d i t t r a n s a c t i o n m u s t b e

v i e w e d a s b e i n g d e a r l y s e p a r a b l e f r o m t h e

i n d i r e c t l y r e l a t e d - b u t d i f f e r e n t - t r a n s a c t i o n i n

w h i c h t h e e n t i t y a c q u i r e s ( o r c o n s t r u c t s ) q u a l i -

f y i n g p r o p e r t i e s . P a r t i e s t o t h e l a t t e r t r a n s -

a c t i o n a r e t h e e n t i t y a n d a v e n d o r ( i n t h e c a s e

o f a p u r c h a s e o f q u a l i f y i n g a s s e ts ) , a n d t h e

g o v e r n m e n t i s i n n o w a y i n v o l v e d . S i n c e t h e

g o v e r n m e n t i s n o t a v e n d o r i n t h e c o n t e x t o f

t h i s t r a n s a c t i o n , t h e s u b s i d y ( i n v e s t m e n t a l l o w -

a n t e ) e m e r g i n g f r o m t h e o t h e r t r a n s a c t io n

s h o u l d n o t a n d c a n n o t b e v i e w e d a s a p r i c e

c o n c e s s i o n . F o r t h i s r e a s o n , t h e c r e d i t c a n n o t

b e v i e w e d a s a n a d j u s t m e n t i n t h e b a s i s o f t h e

as se t , i r re spec t ive o f o r ig ina l congres s iona l

i n t e n t .

A c c o u n t i n g p r o c e d u r e f o r t h e i n v e s t m e n t

i n p r o p e r t i e s m u s t , t h e r e f o r e , b e r e s o l v e d b y

re fe rence to i t s s t a tus a s a s epa ra te t ransac t ion .

I t a p p e a r s t h a t b o t h t h e A c c o u n t i n g P r i n c i p l e s

B o a r d a n d t h e S e c u r i t i e s a n d E x c h a n g e

C o m m i s s i o n h a v e n o t d r a w n v a l i d d i s t i n c t i o n s

b e t w e e n t h e t w o t r a n s a c t i o n s p e r s e a s s p e c i fi e d

a b o v e ; c o n f u s i o n a p p e a r s t o e x i s t w i t h r e s p e c t

t o t h e i n v e s t m e n t c r e d i t t r a n s a c t i o n . I n i t s

a b s e n c e , i t a p p e a r s t h a t a c c o u n t i n g p r o c e d u r e

f o r t h e o r t h o d o x e n t i t y - v e n d o r t r a n s a c t i o n

p o s e s n o s p e c ia l p r o b l e m s .

V a r i a b l e s A f f e c t i n g T r e a t m e n t

O b v i o u s l y , t h e r e l a t i o n o f th e i n v e s t m e n t c r e d i t

t o t h e b a s i s o f t h e a s s e t i s o n e o f t h e f a c t o r s

t h a t p r o d u c e d i n d e c i s io n o n t h e p a r t o f th e

a c c o u n t i n g p r o f e s s i o n . T h e p r e c e d i n g a n a l y s i s

s u g g e s t s a t r e a t m e n t . F o r a c c o u n t i n g t o s h a r e -

ho lde rs , congres s iona l in ten t i s i r re levan t .

E s s e n t ia l l y , t h e i n v e s t m e n t c r e d i t a f f e c t s i n n o

w a y w h a t s o e v e r t h e b a s is o f t h e a s s e t si n ce th e

t r a n s a c t i o n b e t w e e n t h e e n t i t y a n d t h e g o v e r n -

m e n t i s s e p a r a t e f r o m t h e t r a n s a c t i o n i n w h i c h

the a s se t i s acqu i red . 4

S t a t e d a n o t h e r w a y , t h e c r e d it s h o u ld n o t

b e c o n s i d e r e d a s a r e d u c t i o n i n t h e c o s t o f t h e

a s s e t i r r e s p e c t i v e o f c o n g r e s s i o n a l i n t e n t i n

g r a n t i n g t h e a l l o w a n c e . T h e w e i g h t o f a u t h o r i t y

o f t h e C o u n c i l o f T h e I n s t i t u t e o f C h a r t e re d

A c c o u n t a n t s i n E n g l a n d a n d W a le s s u p p o r t s t h i s

v iew: ' Inve s tm ent a l lowan ces a re e s sen t i a l ly a

t a x r e l i e f a n d n o t a r e d u c t i o n i n t h e c a p i t a l c o s t

o f t h e a s s e t s t o w h i c h t h e y r e l a t e . I t w o u l d b e

i n a p p r o p r i a t e f o r t h e t a x r e l i e f o n i n v e s t m e n t

a l lo w a n c e s t o b e d e d u c t e d f r o m t h e c o s t o f t h e

a s s e t s . . .

s

i n v e s t m e n t c r e d i t , a s

O p i n i o n N o .

2 p e r m i t s , r e p r e s e n t s a c o n s p i c u o u s v i o l a ti o n o f

4. The Revenue Act of 1962 required that the

basis of the asset be reduced by 7 percent (or the

applicable amount) of the cost o f the investment. This

adjustment to the ba sis of proper ty was eliminated by

the Re ven ue Act o f 19 64. In this discussion, it is

concluded that tax regulations should not be permit-

ted to e xert an overwhelming influence on financial

accounting theory.

87

FEBRUAR Y, 1970

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88

the ban on offsetting of discrete transactions.

The same criticism applies to crediting of the

investment allowance to the accumulated

depreciation account.

Likewise, the investment tax credit is not

relevant to the measurement of income tax

expense by accounting periods. The provision

for taxes should be determined on a periodic

basis in relation to expired costs and realized

revenues. The board supports this view by

indicating that the investment credit is not an

element entering into the computation of taxes

related to income of the period. ''6 The analysis

thus far indicates that the investment credit

should have no influence on measurement of

either the basis of depreciable property or the

incidence of periodic income tax expense.

The investment credit must be evaluated by

reference to its substantive nature. It is nothing

more than a financing transaction that bears no

relationship to operating results or the produc-

tivity o f assets. As such, its impact on account-

ing measurement should be limited to and

treated as an adjustment to the income tax

obligation as opposed to the related tax

expense. The two are not necessarily equal

during any specific accounting period. Timing

differences associated with accounting for tax

purposes and accounting for reporting purposes

must be understood in order to reconcile book

and taxable income. 7

For shareholder reports, the credit should

be amortized ratably over the period of the

subsidy. No convincing argument appears to

exist in support o f the generally accepted

alternative whereby the credit is to be amor-

tized over the productive life of the asset, s Use

of the period of the subsidy as the relevant time

horizon for amortizing the credit is consistent

with accounting for the transaction from which

the credit arises. The credit is, thus, earned or

realized over the period of the subsidy and

affects income measurement in an analogous

manner as accounting for installment sales (for

tax purposes).

The distinction between this approach and

the method advocated in APB

Opinion No 2

centers around the relevant time period over

which the investment credit should be com-

mitted to the income account. As described in

the preceding analysis, the period of the sub-

sidy is deemed to be the relevant time period.

Indeed, the netting (and commingling) of cost

and liability concessions, related to acquis ition

of an asset in an attempt to measure its

prospective profitability, falls within the prov-

ince of long-range financial planning aspects of

economic theory. Calculations of the type

inferred are properly separable from accounting

methods designed to disclose the historical

experiences of the entity. In the former con-

text, the investment credit may be a relevant

offset to the cost of an investment (cash-flow

analysis) since it influences the management

financial planning decision. On the other hand,

economic determination of earnings associated

with a specific investment relates to its produc-

tive employment and not the equipment pur-

chase decision per se.

5 . I n s t i t u te o f C h a r t e r e d A c c o u n t a n t s i n

E n g l a n d a n d W a l e s , T r e a t m e n t o f I n c o m e T a x e s in

A c c o u n t s o f C o m p a n i e s ( O c t o b e r , 1 9 5 8 ) , p a r a g r a p h

35 , p . 9 .

6 . O p i n i o n N o . 2 p a r a . 8 . ( T h e I n s t i t u t e o f

C h a r t e r ed A c c o u n t a n t s i n E n g l a n d a n d W a l e s i n d i ca t e s

t h a t . . . i t i s t h e r e f o r e a p p r o p r i a t e t o tr e a t t h e t a x

r e l ie f o n i n v e s t m e n t a l l o w a n c e s a s a r e d u c t i o n o f th e

t a x c h a rg e in th e p r o f i t an d l o s s a c c o u n t [ s ee

T r e a t m e n t o f I n c o m e T a x e s in A c c o u n t s o f C o m -

panie s p a r a g r a p h 4 0 , p . 1 0 ] . T h i s a p p r o a c h d o e s n o t

r e s u lt i n i n f o r m a t i v e f i n a n c i a l d i s c lo s u r e , a s a rg u e d

a b o v e . )

7 . S e e , fo r e x a m p l e , A p p e n d i x A o f A P B

OpiHion No. I1

A c c o u n t i n g f o r I n c o m e T a x e s

( D e c e m b e r , 1 9 6 7 ) , p p . 1 8 4 - 8 6 .

ANOTHER APPROACH

The preceding analysis suggests another

approach to accounting for the investment

credit. The following considerations are consis-

tent with accounting and economic theory:

8 . E v a l u a t i o n o f t h i s a l t e r n a t i v e o b v i o u s l y

i n c l u d e s t h e l e s s d e s i ra b l e f l o w - t h r o u g h a p p r o a c h . I t i s

r e a l iz e d i n t h i s d i s c u s s i o n t h a t t h e S E C i s o b l i g a t e d t o

s u p p o r t c o n g r e s s io n a l i n t e n t , w h i c h m a y b e i n c o n s is -

t e n t w i t h l o gi c a l a c c o u n t i n g t r e a t m e n t .

B U S IN E S S H O R I Z O N S

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5/5

The Investment Tax Credit

F ir s t t h e i n v e s t m e n t c r e d i t i s a n i n v e s t -

m e n t a l l o w a n c e o r s u b s i d y p r o v i d e d b y t h e

g o v e r n m e n t i n o r d e r t o e n c o u r a g e o r i n d u c e

s e le c t ed i n v e s tm e n t s f o r t h e p u r p o s e o f e x p a n d -

i n g m a c r o e c o n o m i c a c t iv i t y . A s s u c h , c o n g re s -

s i o n a l i n t e n t a n d a p p r o p r i a t e a c c o u n t i n g t r e a t-

m e n t o f t h e s u b s id y m a y n o t b e c o n g r u o u s .

O b v i o u s l y , th e S E C m a y b e r e q u i re d t o r e ly o n

c o n g r e s s i o n a l i n t e n t a s a g u i d e t o a c c o u n t i n g

t r e a t m e n t f o r r e p o r ts o f c o m p a n i e s u n d e r it s

j u r i d i c t i o n .

S e c o n d t h e i n v e s t m e n t t a x c r e d i t ar is e s

f r o m a n e x c h a n g e t r a n s a c ti o n b e t w e e n t h e

g o v e r n m e n t a n d t h e e n t i t y . I t is s e p a r a te a n d

d i s ti n c t f r o m t h e r e l a t ed t r a n s a c t io n b e t w e e n

t h e e n t i t y a n d v e n d o r f r o m w h i c h q u a l if y i n g

a s s e t s a r e a c qu i r e d .

Third in v i e w o f t h e p r e c e d i n g p o i n t , t h e

c r e d i t s h o u l d n o t b e t r e a t e d a s a r e d u c t i o n i n

p e r i o d i c i n c o m e t a x e x p e n s e , n o r a s a n i n c r e a s e

i n t h e a c c u m u l a t e d d e p r e c i a t i o n a c c o u n t , o r a s

a n o f f s e t t o t h e c o s t o f a s s et s . I t s h o u l d b e

r e f l e c t e d i n t h e a c c o u n t s a s a p e r i o d i c a d j u s t -

m e n t t o t h e f i n a n c i a l o b l i g a t i o n a s s o c i a t e d w i t h

i n c o m e t a x e x p e n s e .

F o u r t h

a s i n d i c a t e d i n t h e p a r a g r a p h

a b o v e , t h e c r e d i t s h o u l d b e s e p a r a t e l y r e f l e c t e d

i n t h e a c c o u n t s w i t h o u t b e i n g o f f s e t a g a i n s t o r

c o m m i n g l e d w i t h o t h e r t r an s a c ti o n s . I t s h o u l d

b e c o m m i t t e d t o t h e i n c o m e s t a t e m e n t o n an

a s - e a rn e d b a s is o v e r t h e p e r i o d o f t h e s u b s i d y a s

s p e c i f i e d b y t h e I n t e r n a l R e v e n u e C o d e a n d

a c c e p t e d b y t h e e n t i ty . S u c h p r o c e d u r e is

c o n s i s te n t w i t h o t h e r p a t t e rn s i n a c c o u n t i n g

t h e o r y , s u c h a s a c c o u n t i n g f o r d e f e r r e d t a x e s

r e s u l ti n g f r o m u s e o f a c c e l e r a te d d e p r e c i a t i o n . 9

La s t t h e c r e d i t s h o u l d n o t i n f lu e n c e d e p r e -

d a t i o n p o l i c y , d e t e r m i n a t i o n o f ta x e x p e n s e f o r

s h a r e h o l d e r r e p o r t i n g , o r b e c o n f u s e d a s a n

a d j u s t m e n t o f t a x ra t e s .

I t i s p o s s i b le t h a t i n t r a p e r i o d o r i n t e r p e r i o d

t a x a l l o c a t i o n m a y b e n e c e s s a r y f o r a d j u s t i n g

f i n a n c ia l s t a te m e n t s t o p r o m o t e i n f o r m a t i v e

d i s c lo s u r e o r t o r e d u c e t h e i m p a c t o f t h e

p r e s e n t c r e d i b i l it y g a p . M e t h o d s o f r e c o n c i l i n g

t h e a c c o u n t s t o a d j u s t f o r d i f f e r e n c e s b e t w e e n

b o o k r e p o r t e d ) a n d t a x a b le n e t i n c o m e h av e

a l re a d y b e e n d e m o n s t r a t e d in c o n t e m p o r a r y

a c c o u n t i n g p r a c ti c e .

9. No te that present value calculations are rele-

vant with respect to both deferred taxes and the

investment credit. Of course, the A PB has not issued

an opin ion on this aspect of the problem. Conceptu-

ally, the procedure is clear-cut.

8 9

FEBRUARY, 1970