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SIWASH MINING & DEVELOPMENT COMPANY

STATEMENT OF CAPITAL EXPENDITURES FOR PROPERTY

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Deferred payments

48,115.40

Total amount of bond on Chataway group Crown grants, Sampson group

50,000.00 546.79

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Book Reviews

REAL ESTATE ACCOUNTS; by WALTER MUCKLOW, C.P.A., Member, Am. Inst. of Accountants, The Ronald Press Company, New York.

Accountancy, in the sense of public accounting, is a young profession comparatively speaking—at least, we are yet in the habit of so mentioning it whether boastfully or apologetically. To a reviewer of books on accountancy, however, there soon comes that sense of slight weariness so aptly termed in trench-slang as "fed-uppedness" as book after book proves to be an old friend with a new face. He is almost tempted to exclaim with the Preacher, "There is nothing new under the sun!" In the nature of things connected with an art based on a few fixed principles this is to be expected. All that one can do is to bear in mind that improvements in accounting methods are always possible but evolve by almost imperceptible degrees. Lucky the reviewer who is able to distinguish and proclaim to the world that some author has really hit upon a new and efficient step rather than merely restated an old one in new and ingenious words. And luckier still when he welcomes to his desk a genuine pioneer work in a littleknown field.

These reflections are aroused by the book on real estate accounts by Mr. Mucklow which has just been published through the Ronald Press. Though at first inclined to take with large grains of salt the author's prefacing statement that there is little literature on the subject of real estate accounting either at home or abroad, on second and prolonged thought the reviewer has to admit the fact. While it is true that every text-book on auditing and accounting usually treats the subject of real estate properly as an item of assets and some give a general notice to it when it appears as the stock-in-trade, we have had until now no book devoted entirely to real estate in its latter form. Why this is so is a conundrum that even Mr. Mucklow's explanation hardly seems adequate to answer. While it may be true that the accountants for real estate companies have been too busy to tell others what they are doing, one would have expected some public accountant long ago to tell us of his experience in auditing such concerns. Land companies are by no means a new thing in this country. Whatever be the real explanation we have the book now and it fills a real need in accountancy literature. It may not be strictly germane to the subject, but we hope this review will fall under the eyes of some accountant for the moving picture business and encourage him to write a similar book on the accounts of that young giant of the business world.

Every class of business has its own technical vocabulary but it is too often forgotten by those who write about it that terms perfectly familiar to them are Sumeric dialect to the general reader. Not the least valuable feature of Real Estate Accounts is that the author has been at much pains

to give clear definitions of terms peculiar to the business, or that are used in a different sense from the ordinary accountancy acceptance. For example, every public accountant knows what a "contract" is, but he may not know that to the real estate accountant "contract" always means "any kind of a lease or agreement providing for the sale of real estate on an instalment plan." (Italic ours.) Again, to us "gains" and "profits" are practically synonymous, but in real estate nomenclature "gains" applies to the gross gain or book profits on land sales "in which the payment of the full purchase price is deferred and the profit has therefore not been fully realized," while "profits" designates gains that have been fully earned or realized. However loose and confusing such use of the words may seem to us it is not for us to quarrel with the "custom of the trade"; it is enough that we are carefully put on our guard in this way by Mr. Mucklow not only in the opening chapter but elsewhere by his clear defining of the words he uses, a method well worth recommending to all writers on distinctive as against general accounting methods and practice. As regards "gains" and "profits," however, it is a fair criticism to say that real estate accountants would do well to abolish the term "gains" (as they define it) from their books and vocabulary, difficult as it might be. As Mr. Mucklow well says (§339) it is very important that “gains” should never be treated as "profits" nor even be called "profits" because of treasury rulings under the income tax law. And we should add that since the law itself specifically taxes all "gains, profits and income" it is by no means impossible that ultra-strict treasury officials might insist on the letter of the law and levy a tax on "gains" as well as "profits." Study of the illustrative journal entries given from time to time in the book makes it quite clear that the function of the gains on sales account is one of providing a reserve against lapses in the payment of instalments, and it would seem that "reserve for lapses" would be a better term and less likely to cause misunderstandings with treasury agents.

What will strike every public accountant as curious and maybe heretical is that the system Mr. Mucklow describes provides nowhere a sales account. Only in schedule I of a series of monthly statements (chapter XXVII) is there shown a summing up of the total sales and cancellations for the month (and we take it for granted the monthly statement is supplemented by a similar statement of year to date). On the books we find the sales are recorded in the following manner:

Contracts (or other form of sale) Dr.

To real estate

Gains account

(Cost of land sold)
(Expected ultimate profit)

Presumably the total debits in the controlling contracts account is relied upon to show the total sales of this character, and one may readily grasp the idea that the form of entry is a great time and labor saver in that by one entry is shown the amount of the sale, the cost of the land is credited to the real estate account, and the gains account records the total profit to be expected. Elsewhere Mr. Mucklow explains the rules by which the un

realized profits may be ascertained, the balance of realized through instalment payments being transferred to the real profit and loss account. But it is evident that after the business is in full swing the effect of contra entries on account of lapses and cash received totally destroys the value of contracts account as a sales record, and makes it necessary to go to the subledgers with an adding machine to extract the desired information. With his personal experience Mr. Mucklow is, of course, the best judge of the question of time and labor saved by his system. What will interest his readers more, however, is the problem involved in making up the income tax returns. By implication at least Mr. Mucklow gives us to understand (§339) that the income tax is to be paid only on realized profits, whereas according to T. D. 2090 (if it has not been recently revoked) real estate companies are required to report and pay tax on the total gains where there has been an actual sale and transfer of the property even though payment is to be made in instalments. The obvious answer is that a contract is not a sale but an agreement to convey when all the required instalments have been paid. From that angle it would appear that there is no sale then until the contract is completed, and it is therefore not strictly logical to take up any profit at all on the books till the sale is consummated. But it would also be illogical to treat the land under contract as being sold, by crediting its pro rata cost to real estate account. Without going further into the question it is sufficient to make it clear to the general practitioner that Mr. Mucklow is handling some very knotty problems in his book.

The book contains a very full description of all the books and record forms pertaining to the real estates business in its various phases, and chapter XXIX gives full and explicit advice in the matter of auditing a real estate company. It not only furnishes a guide to the neophyte but it incidentally conveys a warning to the practitioner who may be requested to make an audit for the first time for a lump sum. The enormous amount of detail work is not always apparent at first sight of the books.

As said before, this is a pioneer work in its field, a first step toward a uniform system for real estate accounts. Every section of our country uas its land companies and every general practitioner will want a copy of this book for study and comparison with his own experience. It is too early yet to say it is the standard authority on its subject but we lose our guess if it does not eventually become so. W. H. L.

THE NATIONAL BUDGET SYSTEM; by CHARLES WALLACE COLLINS. The MacMillan Company, New York.

Every public accountant advocates the budget system for national and state and municipal finances as a matter of course, but how many are able to discuss the subject intelligently with voters and legislators and present sound and convincing reasons therefor? How many really know what a national budget system is? How many know what a chaotic, absurd and

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