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Experts have long debated the theoretical problem of defining business income and the much greater difficulties of translating any definition into an operationally feasible system of accounts. That is to say, a set of accounts that will consistently and unambiguously reveal what has occurred to net worth during a series of selected time periods. As it is, the same data can be organized according to "generally accepted accounting principles" and be made to show radically different net profits available for stockholders. Many factors are contributing to the confusion, including a variety of acceptable methods for spreading period charges. For example, the ways in which inventory or fixed assets are handled can have a significant impact upon reported profits. These profits in their turn play a key role in influencing a wide range of important private and public policy decisions. In 1954 the government permitted firms to elect accelerated depreciation, for new fixed assets as an alternative to the straight-line method.

The article presents some formulae for the calculation of depreciation using declining balance method (DDB) and sum-of-years-digits method. These formulae will enable the non-mathematician accountant to compute such future provisions and reserve balances directly. These formulae may be used for calculating isolated items without the necessity of calculating the intervening items. The auditor can use them to test depreciation provisions computed by his client on a year-by-year basis. The tax planner can use them to see just what depreciation he will have left in later years. Many other similar applications will occur to the reader. In addition to these computational uses the formulae may be used for theoretical computations of behavior in the general case. Since the formulae are applicable in all instances, general rules may be proved. It is commonly stated that shortly after the mid-point of life it is advisable to switch from DDB to straight-line depreciation. To base this statement on observations of a number of specific examples is dangerous.

Presents a reply to the comment of economist A. R. Pagan concerning optimal international reserves. Alternative way of attacking the international reserves problem; Derivation of the optimal reserve formula; Formulation of the total adjustment costs.