8/10/2019 1-s2.0-0007681370900376-main
1/5
8/10/2019 1-s2.0-0007681370900376-main
2/5
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
8/10/2019 1-s2.0-0007681370900376-main
3/5
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
8/10/2019 1-s2.0-0007681370900376-main
4/5
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 H R A D E R
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
8/10/2019 1-s2.0-0007681370900376-main
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