Reviewed by Hans V. Johnson University of North Dakota
It is generally conceded that most of the vexing problems associated with fixed asset accounting were first confronted by British railroad executives and their accountants. Having raised the necessary capital from investors, made the investment in plant and equipment, commenced operations, the need then arose to measure profits and determine the dividend payment. Among the difficult questions raised were the following: What constitutes a fair return on investment? Does prudent management require that a charge for depreciation be recorded in order to compute periodic profit? How could this charge be explained to investors who would receive a smaller dividend because of it? What rationale and what data could be used to accurately compute the amount of the charge? Assuming cash accumulates due to reduced dividend payments, should it be set aside to provide for the future replacement of existing trains and track? What will be the reaction of managers in competing firms to this method of accounting? Not surprisingly, most nineteenth century railroad executives chose not to account for depreciation in measuring periodic profit.
This book from the Garland Publishing series is a collection of twenty-six items which generally pertain to the origin of fixed asset accounting in the nineteenth century British railroad industry. About one-half of the items included come from easily obtainable journals. Only about one-fourth of the items were actually written in the nineteenth century. Categorization is by general methods and procedures, railroad accounting, legislative influences, and general economic overview.
To lead off, the editor adeptly chose to reproduce the chapter on “fixed capital” from Garcke and Fells’ 1893 classic Factory Accounts. Primary source documents include two reports written by Mark Huish who was general manager for the London and North Western Railway in the mid-nineteenth century. The two reports are enlightening, but reading is made difficult due to the poor quality of reproduction. The main contribution of the book is the compilation of related subject material from accounting and business history books and journals.
In the preface, the editor suggests that the book is relevant to “students following courses in accounting history,” and to researchers of “the history of accounting and business because it contains much material not otherwise easily accessible.” In the reviewer’s opinion, the cost of the book exceeds the research benefits for most of these individuals.
The subject matter of the book is, of course, of significant interest to accounting historians. Today, unfortunately, much of the challenge of fixed asset accounting has seemingly disap-peared. Accounting educators, faced with the abysmal coverage of fixed assets in intermediate accounting textbooks, encounter a difficult task in exciting the interest of bright students. Fixed asset accounting has, for the most part, become a clerical activity. A plausible explanation of how we have arrived at current conditions may be inferred from a paper included in the book which was written by historian Harold Pollins. As to British railway accounting prior to 1868, he concludes:
The fact that many items appearing (or not appearing) in the revenue accounts involved personal judgments, and that there was not yet a generally accepted body of accounting doctrine, made it easy for the preparation of the final accounts of even the most conscientiously conducted company to be influenced by considerations of management policy [p. 334].
Over the years, legislators and accountants have attempted to reduce some of the risks to investors by narrowing manage-ment’s choice of accounting alternatives. As a result, many of the fundamental problems of fixed asset accounting which confronted our predecessors, remain unsolved.
Despite my earlier comments, the book is a worthwhile library addition for those universities having graduate accounting programs. Accounting historians with a keen interest in the area, and considerable loose change and bills in their pocket, may find the book to contain new sources of information.
