The evening herald. [volume] (Albuquerque, New Mexico) 1914-1922, 1920-12-24

Merchants Must Adhere
to System Selected
Last Year

Merchants who based their inven-
tories on a cost basis last year viii
not be as.owed I base their Inventory
on cost or market value this year.
and vice versa, according to a recent
ruling OF the commissioner OF the
internal revenue department at
Washington and received by James
a. Han. collector in charge. here. TO-
Mr Hnii said today that the ob
feet to be kept In view u The aacer-
tpiumcnt OF profits during the year
which have been realized through the
sale or exchange OF property. In
accounting II IA recognized that there
are two methods In the taking Of
inventories. either OF which n fol-
lowed through a period OF years will
truly reflect income. The value Of
merchandise may increase while in
the hands OF tho owner, hut before
this becomes profit the appreciation
IN value must be realized through
sale or exchange OF the property,
otherwise you viii have nothing more
than paper profit. The logical meth
cd OF computation a., Therefore, to
apply against the total sales Of the
period the cost OF the. goods covered
by such sales, and the difference rep
resents gross profits. This is accom-
pilahcd II inventories are valued upon
the basis Of cost.
"LnsHes. " Mr.. Hall said. may be
occanioned In different why's. hut the
loss uppermost In the merchant mind
at present 3 that which may be occa-
stoned b. ~shrinkage in market value.
Shall such loss be admitted and takcn
into account In the valuation OF In.
vcntorics FOR the present taxable year
The admission OF n loss not fully re-
allied by n completed transaction
(salel results in nothing more seri-
GUS han postponement OF profit TO a
subsequent accounting period. The
valuation OF Inventories at replace
ment value may result In materially
reducing the net income for the tax
able year. but such reduction will
certainly be reflected IN the net for
tho subsequent year, Tho inventory
taken now represents the opening
stock for 1921, and hence IL valued
at replacement value u IL tho same as
n the stock were purchased on the
market Of today.
The rovenue act OF 1918 provides
that Then In the opinion OF the com
missioner tho use OF inventories h
necessary IN order to clearly de.
tcrninc the income OF my taxpayer
inventories shall be taken by sucl
taxpayer upon such basis as the ON
missioner. with the approval OF fh'
secretary. shall prescrlhe Recognize.
ing the well established principles oil
good accounting II has been provided
that Inventories may be taken at tal
cost or I'D cos or market whichever
n the lower. The valuation OF In.
Vcntorioa taken at 1oat In quite sim.
nlo. while the application of cost q
market whichever Is the lower, h
more complicated for the reason tim
the taxpayer Is required 10 apply cos
70 cnch item II cost Is lower MAR
market. and to apply TO ench item
market Vn1us N that u lower thar
cost. A simple method for this Il
the use OF two columns. n for cos
and the other for market. and ths
sum Of the two II the total inventory
value.
IL Is provided by Article 1859 o.
Regulations as that n taxpayer may
regardless OF his past practice, adopI
the hania OF cost or market which
ever n lower. for his 1918 inventory