CHAPTER IV 

 VALUATION OF ASSETS 



54. Valuation Accounts. A valuation account is a specific 

 statement ( 19) of the value of assets, whether material or con- 

 sisting of intangible rights. It informs the owner of the present 

 condition of the property, and enables him to compare this con- 

 dition and value with the total net cost or investment (22), and 

 thus determine whether the business as a whole is gaining or 

 losing ( 28). To accomplish this purpose, the account should 

 show what the business or property is actually worth at the 

 present moment, not merely what it was worth when the assets 

 were first acquired. 



55. The Inventory. In order to determine value we must 

 know the quantity of goods on hand and what each unit is worth. 

 This process of taking stock is termed an inventory. It is not 

 complete with the mere listing of goods, but includes their valu- 

 ation. In forest management the process of estimating standing 

 timber and other forest resources, often termed reconnaisance, 

 is the means of obtaining this data. 



56. Cost as a Basis of Value. Conservative accounting 

 seeks to avoid inflation of the value of assets, with its corre- 

 sponding indication of false profits in the balance sheet. If an 

 asset has been purchased in good faith, the purchase price is 

 taken to represent its true value. All items of investment 

 representing assets of such a character that they would be 

 included in the capital account will be accepted at cost, less 

 depreciation, in the valuation of assets. This does not mean 

 that the cost of an article represents its present value, but merely 

 that cost is definitely known and, when corrected for deprecia- 

 tion, is accepted as a conservative basis for value. 



57. Expenses and Interest versus Value. While account- 

 ants approve of the acceptance of capital expenditures or original 



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