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The Journal of Accountancy

Published Monthly under the auspices of the
American Association of Public Accountants

Vol. 3


No. 1

The Appreciation of Assets—When Is It Legitimate ?

By John P. HERR. In considering the subject of appreciation we should be careful to distinguish between the two ideas conveyed by the term; first, the actual increase in values or the added monetary worth of an article or asset; second, the record made on books of account showing increased valuations whether actual or not. In the former sense, appreciation may be called appreciation in fact, and in the latter case it is the writing up of book values. There may be an appreciation in fact without any record being made on the books, and, on the other hand, appreciations may be entered on the books while no actual increase in value of the asset has taken place.

The writing up of book values, bearing as it does directly on accountancy, and the questions involved in such book entries, will be our subject for consideration, but it may be well to notice briefly that there are certain causes which produce actual appreciations in fact of a permanent character.

Appreciation in fact may arise from one of three general causes: A change in the character, substance or use of an article or material will create an appreciation of value. The manufacturer by means of capital employs labor, power, etc., to convert out of a mass of material which in its raw state has no utility whatever with the public and for which there exists no popular demand, articles which being of service to mankind, he is able to dispose of for more money than was expended by him in the production thereof. He has by bringing together the genius of the inventor, his own or borrowed capital, and the further element

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