Alleghany Corporation: Bond Discount and Expense; Gains and Losses on Sale of Investments; Contracts to Sell Securities.

The United States Securities and Exchange Commission in a recent release discusses the application of accounting principles to three issues raised by the financial statements, for 1934 to 1937 inclusive, of the Alleghany Corp. These include the handling of bond discount and expense, the treatment of gains and losses on the sale of investments, and the proper recording of a contract between the Alleghany Corp. and the Chesapeake and Ohio Railway Co. covering the sale of securities by the Alleghany Corp. The Securities and Exchange Commission points out that accounting authority sanctions the amortization of bond discount and expense as an additional element of interest cost on borrowed capital, and the setting up of the unamortized portion on the asset side as a deferred charge. However, in a footnote the Commission warns investors that such an item does not constitute a tangible or realizable value. The Commission illustrated the effect of the improper accounting principles originally used in the three instances under consideration by comparing the uncorrected surplus balances for December 31, 1934, with the amended balances.