VALUATION OF ASSETS 37 



tions. Shall the value of such property be based on the 

 purchase price, plus expenses, plus unpaid or deferred interest, 

 representing the total "cost" or "cost value" of the property? 

 As in the case of the railroad this might be justified. But such 

 "cost" is only an indication of value in either of these instances. 

 Unless the property is of such a character and its promise of 

 future income is such that this increase in value is sure to occur 

 and is evidently taking place, no one would be deceived into 

 thinking that such a cost calculation corresponded in the least 

 with value. Even then the value might be more, or less, and 

 there is no reason for assuming that it is accurately gauged by 

 cost. 



58. Essential Difference between Cost and Value. The 

 reader must keep clearly in mind that the valuation of assets is 

 a process essentially different from the account of cost and ex- 

 penses (Chapter I, Articles 2 to n inclusive). If costs are taken 

 as the basis of value, as is done in some instances (56), they 

 are merely the source of the information used, but this informa- 

 tion might as readily be obtained from entirely different sources, 

 and frequently must be so acquired. Value is determined for 

 the purpose of comparison with costs to indicate profit or loss. 

 If it were identical with cost, no comparison would be possible 

 and the owner could not determine his probable profits. 



59. Sale Value as a Basis of Value. In case a business 

 changes hands by sale, the sale value so determined is accepted 

 as the value of the business. In this transaction the price paid 

 for the assets must be entered as their value on the books. 

 Such sales thus establish a new recorded or book value for these 

 assets. The fact of the sale is the most convincing evidence of 

 value, although even this is not final proof, for one or the other 

 of the parties may have been deceived or handicapped in the 

 transaction. Nor will a past sale be accepted as absolutely 

 determining a future sale value even for the same property; 

 in fact it is usually the reason for desiring a different value. 

 Sales of property or business have a profound effect upon pro- 

 prietary accounts, in that the former owner receives at once all 

 his income and capital and can balance his books and determine 



