BUSINESS PROFITS

Dominion, Volume 30, Issue 159, 2 April 1937, Page 7

BUSINESS PROFITS

Ascertainment a Difficult

Matter

In a recent review of the evolution of accountancy Mr. E. Eurnival Jones (London) remarked that 50 years ago a very large part of accountants’ activities'were concerned with insolvency of various commercial and industrial concerns which had rather haphazard notions in the conduct of operations, but to-day the accountant was more engaged in saving the life o f a business than taking part in an inquest. ‘■The object of every business enteiprise is gain,” said Mr. Jones. In the case of a public utility company this gain, or,a considerable part of it. is described as ‘service.’ In passinc. it may be noted that the use of the word service as descriptive of the operat ons of almost every kind of business has become a commonplace in the commercial jargon of recent years. Presumably the word is used for the comfort of the man who pays! “The end and aim of the business being gain, and the fact that by law some part of that gain is confiscated by the State, and that nothing but gain can properly be distributed as dividend among shareholders or prudently spent by a private owner, it follows that the most important part of the accountant’s duties and the most insistent of his problems is the ascertainment of profit. “In addressing the Congress on Accounting in America, Lord Blender said ‘There are certain words in our language which are capable of many interpretations. They mean one thing to one person and quite another thing to someone else; they have one meaning under certain conditions and other meanings under different conditions. In the region of finance and accountancy I do not think that any word falls more completely into this category than the word ‘profits.’ “Nothing sounds simpler than the question, ‘What are profits?’, and nothing is simpler than to assess the profit on an isolated transaction. Neither is it difficult to assess the profits on a series of transactions if they are part of an adventure which is commenced and finished within a relatively short period of time. But the problem takes on another aspect when it is a question of ascertaining the profits applicable to a given year which are piade by an undertaking in which capital was embarked year? ago, and which is likely to continue to carry on business or manufacture for a number of years to come.

“Strictly speaking, the true profit of an undertaking cannot be known until its li£p com.es to an end. and even then —although it might be easy to state such profit in terms of money—the true profit might still be obscure. An illustration wj’.s given In a recent lecture of a man who embarked £lOO,OOO in a business, which h.e carried on for 20 years. He drew from the business £lOOO a year, and he sold his as«><s at the end for £120.000, Measured in term.s of money, his enterprise had resulted in a profit of £40,000. Expressed in terms of the purchasing power of money, it might have been eotiallv true that he had lost the equivalent to 20,000 of'his original pounds.”