Investment Credit

The purpose of this study was to present a comprehensive analysis of investment credit. The study covers investment credit from the time when it was recommended to Congress by President John F. Kennedy to the present time. Investment Credit came into existence under the Revenue Act of 1962 and was amended by the Revenue Act of 1964. Ever since it came into existence there has been a controversy among accountants as to which method of accounting should be used. Under the Revenue Act of 1962, three methods of accounting were used. After the Revenue Act of 1964 this was narrowed to two methods of accounting. Most of this thesis was devoted to explaining the various investment credit laws and to presenting the accounting methods used for recording the investment credit on the books of the company. Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants were also presented as well as the methods of accounting required by several of the Federal regulatory agencies. After completing this study, the author has reached the conclusion that one of these methods of accounting is better than the others. This method is the normalization or full deferral method which spreads the effects of investment credit over the life of the asset. This is in contrast to the other methods which recognize a large portion or all of the investment credit as income in the year that it is taken as a credit on the tax return.