By Michael Greener

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In fact it begs the outstanding question. Is there any point in publishing a balance sheet which purports to be for the benefit and information of the recipient, who as shareholder is theoretically the owner, when the items on the balance sheet are in some important part wrongly valued? In a time of inflation as has been experienced in recent years, the currency of a country effectively changes 14 BETWEEN THE LINES OF THE BALANCE SHEET from one chosen period to the next. To state, say, property purchased in 1920 at cost in the accounts of 1963 is therefore to state that asset in terms of an alien currency.

At 1936 valuations with additions at cost; George Wimpey — at cost; Imperial Tobacco — at a mixture of cost and valuation; Courtaulds — at valuation 1939. I, inasmuch as their assets were revalued at 1st January 1959; incidentally, the works, land and buildings of the holding company showed an increase of nearly 200%. It is obvious that in considering the return on capital, present conditions make inter-company comparisons misleading. , were their assets revalued at 1959 prices then the return may drop well below.

E. large-scale contractors, is that a great deal of money is tied up in stocks and workin-progress: in Wimpey's, 1963, 45% of total assets. It is obvious that an error in valuation of this figure in any year could considerably influence profits. However, when talking of trends it would be necessary to 32 BETWEEN THE LINES OF THE BALANCE SHEET overvalue stocks and work-in-progress by an increasing amount each year to keep up a stable and high, though false, level of profit. This would soon end in disaster.

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