The nature of capital and income

Bibliographic data

Monograph

Identifikator:: 102659555X

URN:: urn:nbn:de:zbw-retromon-82920

Document type:: Monograph

Author:: Fisher, Irving http://d-nb.info/gnd/118533541

Title:: The nature of capital and income

Place of publication:: New York

Publisher:: The Macmillan Company

Year of publication:: 1923

Scope:: XXI, 427 Seiten

Digitisation:: 2019

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Part I. Capital

Collection:: Economics Books

Skc. 8] CAPITAL ACCOUNTS §8 We have considered two ways through which the book- value of capital, surplus, and divided profits may ex- aggerate the true condition of the stockholders’ property, namely, through misfortune or the unforeseen shrink- age of the assets, and through misappropriation of stock- holders’ funds, even when stock had at the outset been issued at par. There remains to be considered a third way, namely, through the issue of stock below par, or for services, patents, etc., at unduly high prices. To illustrate this way of overvaluing capital, or “ stock- watering,” suppose a company to be capitalized at $200,000, and that this company issues at the beginning 1000 certifi- cates of the par value of $100,000, but sells them for only $60 per share actually paid into the treasury. Here is $60,000 paid-in capital, represented by $100,000 face value of stock certificates, leaving a margin of $40,000 “ water.” Sup- pose, further, that another block of $100,000 of the stock 1s given to an inventor for his patent, the real value of which is only $10,000. Finally, suppose that bonds are issued to the extent of $300,000, and are floated at par. Then the company has received in actual cash only $360,000. Of this sum only $60,000 has been received from the stock- holders. The patent, which has also been contributed in return for $100,000 of stock, and which is worth only one tenth of that sum, makes the total balance due the stock- holders $70,000. But, the company is capitalized at $200,000. Consequently it will be necessary for the book- keeper to exaggerate the assets to the extent of $130,000. He may do this as follows: — Assets Liabilities Plant [cost $360,000] . $400,000 Bonds . . . . . . $300,000 Patent [worth 10,000] . 100,000 Capital: =. +» ois 200,000 $500,000 $500,000 Here $90,000 of the exaggeration is put under patent and the remainder in an overvaluation of the plant. Many

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