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Financial Accounting
highly regarded product for the changing needs of today’s instructors and students.
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presentation, the conceptual framework for financial reporting, accounting for leases,
revenue recognition, financial instruments and corporate social responsibility reporting

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8th
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35.73mm spine width
 Chapter 23 Related party disclosures 820
Chapter 24 Earnings per share 839

PART 8 ACCOUNTING FOR EQUITY INTERESTS IN OTHER ENTITIES 869

Chapter 25 Accounting for group structures 870
Chapter 26 Further consolidation issues I: accounting for intragroup transactions 924
Chapter 27 Further consolidation issues II: accounting for non-controlling interests 966

PART 9 FOREIGN CURRENCY 1007

Chapter 28 Accounting for foreign currency transactions 1008
Chapter 29 Translating the financial statements of foreign operations 1028

PART 10 CORPORATE SOCIAL-RESPONSIBILITY REPORTING 1049

Chapter 30 Accounting for corporate social responsibility 1050

ONLINE CHAPTERS
Chapter 31 Further consolidation issues III: accounting for indirect ownership interests
Chapter 32 Accounting for investments in associates and joint ventures

Appendix A Present value of $1 1122

Appendix B Present value of an annuity of $1 1124
Appendix C Calculating present values 1126

Contents in brief vii

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CONTENTS IN FULL

About the author v

Contents in brief vi
Preface xvii
Acknowledgments xviii
AACSB statement xix
How to use this book xx
Digital resources xxii
Credits xxiv

PART 1 THE AUSTRALIAN ACCOUNTING ENVIRONMENT 1

CHAPTER 1 AN OVERVIEW OF THE AUSTRALIAN EXTERNAL REPORTING ENVIRONMENT 2

Accounting, accountability and the role of financial accounting 3 Learning objectives 2

Financial accounting defined 4 Summary 43
Users’ demand for general purpose financial statements 4 Key terms 43
Sources of external financial reporting regulations 6 End-of-chapter exercises 43
The process of Australia adopting accounting standards issued Review questions 44
by the International Accounting Standards Board 25 Challenging questions 44
Structure of the International Accounting Standards Board 34 References 46
International cultural differences and the harmonisation of accounting
standards 37
Accounting standards change across time 38
The use and role of audit reports 38
All this regulation—is it really necessary? 39

CHAPTER 2 THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING 48

Australia’s use of the IASB conceptual framework 49 Learning objectives 48

What is a conceptual framework? 49 Summary 78
Benefits of a conceptual framework 50 Key terms 79
Current initiatives to develop a revised conceptual framework 50 End-of-chapter exercises 79
Structure of the conceptual framework 52 Review questions 79
Building blocks of a conceptual framework 54 Challenging questions 80
Measurement principles 73 References 81
A critical review of conceptual frameworks 74
The conceptual framework as a normative theory of accounting 77

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 PART 2 THEORIES OF ACCOUNTING 83
CHAPTER 3 THEORIES OF FINANCIAL ACCOUNTING 84

Introduction to theories of financial accounting 85 Learning objectives 84

Why discuss theories in a book such as this? 85 Summary 126
Definition of theory 86 Key terms 127
Positive Accounting Theory 87 End-of-chapter exercises 127
Accounting policy selection and disclosure 101 Review questions 128
Accounting policy choice and ‘creative accounting’ 102 Challenging questions 131
Some criticisms of Positive Accounting Theory 103 Further reading 134
Normative accounting theories 105 References 134
Systems-oriented theories to explain accounting practice 109
Theories that seek to explain why regulation is introduced 122

PART 3 ACCOUNTING FOR ASSETS 139

CHAPTER 4 AN OVERVIEW OF ACCOUNTING FOR ASSETS 140

Introduction to accounting for assets 141 Learning objectives 140

Numbering of Australian Accounting Standards 141 Summary 173
Definition of assets 142 Key terms 173
General classification of assets 149 End-of-chapter exercises 174
How to present a statement of financial position 150 Review questions 174
Determination of future economic benefits 153 Challenging questions 176
Acquisition cost of assets 157 References 179
Accounting for property, plant and equipment—an introduction 158
Assets acquired at no cost 169
Possible changes in the requirements pertaining to financial
statement presentation 170

CHAPTER 5 DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT 180

Introduction to accounting for depreciation of property, plant and equipment 181 Learning objectives 180
Depreciable amount (base) of an asset 182 Summary 195
Determination of useful life 183 Key terms 196
Method of cost apportionment 184 End-of-chapter exercises 196
Depreciation of separate components 187 Review questions 196
When to start depreciating an asset 188 Challenging questions 198
Revision of depreciation rate and depreciation method 188
Land and buildings 189
Modifying existing non-current assets 191
Disposition of a depreciable asset 191
Depreciation as a process of allocating the cost of an asset over its useful life:
further considerations 193
Disclosure requirements 194

CONTENTS IN FULL ix

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 CHAPTER 6 REVALUATIONS AND IMPAIRMENT TESTING OF NON-CURRENT ASSETS 202

Introduction to revaluations and impairment testing of non-current assets 203 Learning objectives 202
Measuring property, plant and equipment at cost or at fair value—the choice 203 Summary 227
The use of fair values 204 Key terms 228
Revaluation increments 205 End-of-chapter exercises 228
Treatment of balances of accumulated depreciation upon revaluation 206 Review questions 229
Revaluation decrements 209 Challenging questions 231
Reversal of revaluation decrements and increments 210 References 233
Accounting for the gain or loss on the disposal or derecognition of a revalued
non-current asset 212
Recognition of impairment losses 216
Further consideration of present values 221
Offsetting revaluation increments and decrements 223
Investment properties 223
Economic consequences of asset revaluations 224
Disclosure requirements 226

CHAPTER 7 INVENTORY 234

Introduction to inventory 235 Learning objectives 234

Definition of inventory 235 Summary 251
The general basis of inventory measurement 235 Key terms 252
Inventory cost-flow assumptions 242 End-of-chapter exercises 252
Reversal of previous inventory write-downs 250 Review questions 253
Disclosure requirements 251 Challenging questions 254
References 257

CHAPTER 8 ACCOUNTING FOR INTANGIBLES 258

Introduction to accounting for intangible assets 259 Learning objectives 258

Which intangible assets can be recognised and included in the statement Summary 287
of financial position? 261 Key terms 287
What is the initial basis of measurement of intangible assets? 262 End-of-chapter exercises 288
General amortisation requirements for intangible assets 264 Review questions 289
Revaluation of intangible assets 267 Challenging questions 293
Gain or loss on disposal of intangible assets 268 References 298
Required disclosures in relation to intangible assets 268
Research and development 269
Accounting for goodwill 279
Is the way we account for intangible assets an improvement over what
we did in Australia prior to the introduction of IFRS in 2005? 286

CHAPTER 9 ACCOUNTING FOR HERITAGE ASSETS AND BIOLOGICAL ASSETS 300

Introduction to accounting for heritage assets and biological assets 301 Learning objectives 300
Accounting for heritage assets 301 Summary 336
Accounting for biological assets 320 Key terms 337
End-of-chapter exercises 337
Review questions 337
Challenging questions 338
References 341

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 PART 4 ACCOUNTING FOR LIABILITIES AND OWNERS’ EQUITY 343
CHAPTER 10 AN OVERVIEW OF ACCOUNTING FOR LIABILITIES 344

Liabilities defined 345 Learning objectives 344

Contingent liabilities 347 Summary 366
Contingent assets 350 Key terms 366
Classification of liabilities as ‘current’ or ‘non-current’ 350 End-of-chapter exercises 366
Liability provisions 351 Review questions 367
Some implications of reporting liabilities 356 Challenging questions 371
Debt equity debate 358 References 375
Accounting for debentures (bonds) 360
Hybrid securities 365

CHAPTER 11 ACCOUNTING FOR LEASES 376

An overview of recent developments in the accounting requirements Learning objectives 376

pertaining to accounting for leases 377 Summary 416
The core principle and scope of the new accounting standard on leasing 383 Key terms 418
Exemptions for leases of 12 months or less, and for low-value assets 383 End-of-chapter exercises 418
What is a lease? 384 Review questions 419
When to recognise a lease 387 Challenging questions 421
Accounting for the service component of a contract that includes a lease 388 References 425
The meaning of ‘lease term’ 388
Accounting for leases by lessees 390
Accounting for leases by lessors 401
Implications for accounting-based contracts 413

CHAPTER 12 ACCOUNTING FOR EMPLOYEE BENEFITS 427

Overview of employee benefits 428 Learning objectives 427

Categories of employee benefits 430 Summary 450
Accounting for employee benefits 431 Key terms 450
Employees’ accrued employee benefits and corporate collapses 449 End-of-chapter exercises 450
Review questions 452
Challenging questions 453
References 456

CHAPTER 13 SHARE CAPITAL AND RESERVES 457

Introduction to accounting for share capital and reserves 458 Learning objectives 457
Different classes of shares 459 Summary 476
Accounting for the issue of share capital 460 Key terms 476
Accounting for distributions 467 End-of-chapter exercises 477
Redemption of preference shares 468 Review questions 478
Forfeited shares 470 Challenging questions 480
Share splits and bonus issues 472 References 480
Rights issues and share options 473
Required disclosures for share capital 475
Reserves 475

CONTENTS IN FULL xi

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 CHAPTER 14 ACCOUNTING FOR FINANCIAL INSTRUMENTS 481

Introduction to accounting for financial instruments 482 Learning objectives 481

Financial instruments defined 483 Summary 539
Debt versus equity components of financial instruments 488 Key terms 539
Set-off of financial assets and financial liabilities 492 End-of-chapter exercises 540
Recognition and measurement of financial assets 495 Review questions 541
Recognition and measurement of financial liabilities 509 Challenging questions 544
Derivative financial instruments and their use as hedging instruments 512 References 547
Compound financial instruments 535
Disclosure requirements pertaining to financial instruments 537

CHAPTER 15 REVENUE RECOGNITION ISSUES 548

New accounting standard on revenue recognition 549 Learning objectives 548

Definition of income and revenue 550 Summary 575
Recognition criteria for revenue from contracts with customers 551 Key terms 576
Measurement of revenue 552 End-of-chapter exercises 576
Income and revenue recognition points 555 Review questions 580
Accounting for sales with associated conditions 559 Challenging questions 582
Interest and dividends 563 References 584
Unearned revenue 566
Accounting for construction contracts 566
Summary of the steps to be taken when recognising revenue 574

CHAPTER 16  HE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME,

T
AND THE STATEMENT OF CHANGES IN EQUITY 585

Introduction to the statement of profit or loss and other comprehensive income 586 Learning objectives 585
Profit or loss disclosure 589 Summary 617
Statement of changes in equity 603 Key terms 618
Prior period errors 604 End-of-chapter exercises 618
Changes in accounting policy 607 Review questions 618
Profit as a guide to an organisation’s success 613 Challenging questions 620
Future changes in the requirements pertaining to how we present References 624
information about comprehensive income 615

CHAPTER 17 ACCOUNTING FOR SHARE-BASED PAYMENTS 625

Introduction to accounting for share-based payments 626 Learning objectives 625

Background to the release of AASB 2 626 Summary 652
Overview of the requirements of AASB 2 628 Key terms 652
Equity-settled share-based payment transactions 629 End-of-chapter exercises 652
Cash-settled share-based payment transactions 643 Review questions 653
Share-based payment transactions with cash alternatives 647 Challenging questions 654
Possible economic implications of AASB 2 649
Disclosure requirements 650

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 CHAPTER 18 ACCOUNTING FOR INCOME TAXES 656

Introduction to accounting for income taxes 657 Learning objectives 656

The balance sheet approach to accounting for taxation 658 Summary 686
Tax base of assets and liabilities: further consideration 664 Key terms 687
Deferred tax assets and deferred tax liabilities 667 End-of-chapter exercises 687
Unused tax losses 669 Review questions 689
Revaluation of non-current assets 672 Challenging questions 691
Offsetting deferred tax liabilities and deferred tax assets 679 References 694
Change of tax rates 679
Evaluation of the assets and liabilities created by AASB 112 680

PART 5 ACCOUNTING FOR THE DISCLOSURE OF CASH FLOWS 695

CHAPTER 19 THE STATEMENT OF CASH FLOWS 696

Comparison with other financial statements 697 Learning objectives 696

Defining ‘cash’ and ‘cash equivalents’ 701 Summary 727
Classification of cash flows 703 Key terms 728
Format of statement of cash flows 704 End-of-chapter exercises 728
Calculating cash inflows and outflows 709 Review questions 731
Contractual implications 721 Challenging questions 735
Potential future changes to the statement of cash flows 722 References 740

PART 6 INDUSTRY-SPECIFIC ACCOUNTING ISSUES 741

CHAPTER 20 ACCOUNTING FOR THE EXTRACTIVE INDUSTRIES 742

Overview of accounting for exploration and evaluation expenditures under AASB 6 743 Learning objectives 742
Extractive industries defined 744 Summary 772
Alternative methods to account for preproduction costs 745 Key terms 773
Abandoning an area of interest 748 End-of-chapter exercises 773
Accumulation of costs pertaining to exploration and evaluation activities 748 Review questions 773
Basis for measurement of exploration and evaluation expenditures 749 Challenging questions 775
Impairment and amortisation of costs carried forward 750 References 776
Restoration costs 752
Sales revenue 754
Inventory 755
Disclosure requirements 755
Does the area-of-interest method provide a realistic value for an entity’s reserves? 764
Research on accounting regulation pertaining to pre-production expenditures 764
Other developments in extractive industry reporting 767
The development of a new accounting standard for extractive activities 769

PART 7 OTHER DISCLOSURE ISSUES 779

CHAPTER 21 EVENTS OCCURRING AFTER THE END OF THE REPORTING PERIOD 780

What is an ‘event after the reporting period’? 781 Learning objectives 780
Types of events after the reporting period 782 Summary 789
Disclosure requirements 787 Key terms 789
End-of-chapter exercises 789
Review questions 789
Challenging questions 790

CONTENTS IN FULL xiii

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 CHAPTER 22 SEGMENT REPORTING 794

Advantages and disadvantages of segment reporting 795 Learning objectives 794

An introduction to AASB 8 799 Summary 811
Defining an operating segment 801 Key terms 812
Defining a reportable segment 803 End-of-chapter exercises 812
Measurement of segment items 806 Review questions 815
Required financial disclosures 807 Challenging questions 817
Reconciliation of segment information to financial statements 808 References 819
Non-financial disclosures 809
Is there a case for competitive harm? 811

CHAPTER 23 RELATED PARTY DISCLOSURES 820

Introduction to related party disclosures 821 Learning objectives 820

Related party relationship defined 821 Summary 836
AASB 124 Related Party Disclosures 822 Key terms 836
Section 300A of the Corporations Act 2001 831 End-of-chapter exercises 836
Examples of related party disclosure notes 835 Review questions 836
Challenging questions 837
References 838

CHAPTER 24 EARNINGS PER SHARE 839

Introduction to earnings per share 840 Learning objectives 839

Computation of basic earnings per share 840 Summary 858
Diluted earnings per share 851 Key terms 859
Linking earnings per share to other indicators 857 End-of-chapter exercises 859
Review questions 861
Challenging questions 864
References 867

PART 8 ACCOUNTING FOR EQUITY INTERESTS IN OTHER ENTITIES 869

CHAPTER 25 ACCOUNTING FOR GROUP STRUCTURES 870

Introduction to accounting for group structures 871 Learning objectives 870

Rationale for consolidating the financial statements of different legal entities 872 Summary 910
History of Australian Accounting Standards that govern the preparation Key terms 911
of consolidated financial statements 873 End-of-chapter exercises 911
‘Investment entities’: exception to consolidation 877 Review questions 915
Alternative consolidation concepts 878 Challenging questions 919
The concept of control 879 References 923
Direct and indirect control 885
Accounting for business combinations 887
Gain on bargain purchase 897
Subsidiary’s assets not recorded at fair values 898
Previously unrecognised identifiable intangible assets 903
Consolidation after date of acquisition 906
Disclosure requirements 908
Control, joint control, and significant influence 909

xiv CONTENTS IN FULL

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 CHAPTER 26 FURTHER CONSOLIDATION ISSUES I: ACCOUNTING FOR INTRAGROUP TRANSACTIONS 924

Introduction to accounting for intragroup transactions 925 Learning objectives 924

Dividend payments from pre- and post-acquisition earnings 925 Summary 949
Intragroup sale of inventory 932 Key terms 950
Sale of non-current assets within the group 942 End-of-chapter exercises 950
Review questions 957
Challenging questions 960

CHAPTER 27 FURTHER CONSOLIDATION ISSUES II: ACCOUNTING FOR NON-CONTROLLING INTERESTS 966

Introduction to accounting for non-controlling interests 967 Learning objectives 966

What is a non-controlling interest? 967 Summary 990
Non-controlling interests to be disclosed in the consolidated Key terms 990
financial statements 968 End-of-chapter exercises 991
Calculating non-controlling interests 969 Review questions 1001
Challenging questions 1003

PART 9 FOREIGN CURRENCY 1007

CHAPTER 28 ACCOUNTING FOR FOREIGN CURRENCY TRANSACTIONS 1008

Introduction to accounting for foreign currency transactions 1009 Learning objectives 1008
Foreign currency transactions 1009 Summary 1020
Determination of functional currency and presentation currency 1013 Key terms 1021
Longer-term receivables and payables 1014 End-of-chapter exercises 1021
Translation of other monetary assets such as cash deposits 1015 Review questions 1022
Qualifying assets 1016 Challenging questions 1025
Hedging transactions 1018
Foreign currency swaps 1019

CHAPTER 29 TRANSLATING THE FINANCIAL STATEMENTS OF FOREIGN OPERATIONS 1028

Introduction to translating the financial statements of foreign operations 1029 Learning objectives 1028
Reporting foreign currency transactions in the functional currency 1029 Summary 1043
Translating the accounts of foreign operations into the presentation currency 1036 Key terms 1043
Consolidation subsequent to translation 1041 End-of-chapter exercises 1043
Review questions 1045
Challenging questions 1045

CONTENTS IN FULL xv

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 PART 10 CORPORATE SOCIAL-RESPONSIBILITY REPORTING 1049
CHAPTER 30 ACCOUNTING FOR CORPORATE SOCIAL RESPONSIBILITY 1050

Introduction to social-responsibility reporting 1051 Learning objectives 1050

Social and environmental reporting defined 1053 Summary 1112
What are the responsibilities of business (to whom and for what)? 1055 Key terms 1113
Evidence of public social and environmental reporting 1061 End-of-chapter exercises 1113
Why report? 1063 Review questions 1113
To whom will the organisation report? 1074 Challenging questions 1116
What information shall be reported? 1075 References 1118
How (and where) will the information be presented? 1077
Other international initiatives to assist corporate social and environmental
performance 1101
Social auditing 1104
The critical problem of climate change 1107
Personal social responsibility 1111
Concluding remarks 1112

ONLINE CHAPTERS
CHAPTER 31 FURTHER CONSOLIDATION ISSUES III: ACCOUNTING FOR INDIRECT OWNERSHIP INTERESTS
CHAPTER 32 ACCOUNTING FOR INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

Appendix A 1122
Appendix B 1124
Appendix C 1126
Glossary1128
Index1137

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PREFACE
This is the eighth edition of a book that was originally
published in 1995. Since the first edition of this book was
published we have seen extensive changes in relation to
the practice and regulation of general purpose financial
reporting. These changes continue to occur and this book
has always attempted to carefully explain the nature of
the changes as well as the potential economic and social
consequences which might result from such changes.
In the period of time between when the seventh
edition of this book was published, and the writing of this
eighth edition was completed (writing was completed in
March 2016) there have been some rather significant
changes in regulation and guidance pertaining to external
reporting. These changes have been incorporated
within this eighth edition and some of the major changes
we cover relate to such areas as financial statement
presentation, The Conceptual Framework for Financial
Reporting, accounting for leases, revenue recognition,
financial instruments, and corporate social-responsibility
reporting. Because many of these changes are significant
we will provide critical comparisons of the ‘old’ and ‘new’
requirements.
Each chapter of this eighth edition contains learning
objectives, chapter summaries and a comprehensive end-
of-chapter exercise. A glossary of key terms is provided
towards the back of the book. The book provides material
that will enable the reader to gain a thorough grasp of the
contents and of the practical application of the majority
of financial accounting requirements currently in place
in Australia. In the discussion of these requirements,
numerous worked examples, with detailed solutions, are
provided throughout the text.
As well as addressing how to apply the various
accounting requirements, this text also encourages
readers to critically evaluate the various rules and
guidelines. The aim is to develop accountants who are
not only able to apply particular accounting requirements,
but who will also be able to contribute to the ongoing
improvement of accounting requirements. The view taken
is that it is not only important for students to understand
the rules of financial accounting, but also to understand
the limitations inherent in many of the existing accounting
requirements. For this reason, reference is made to various
dee64022_Prelims_i-xxiv.indd xvii
research studies that consider the merit, implications, and
costs and benefits of the various accounting requirements.
Also, various newspaper articles discussing different
aspects of the accounting requirements are reproduced
for consideration and discussion. The permission of
copyright holders to reproduce this material is gratefully
acknowledged.
Social-responsibility reporting continues to be an
important area of accounting, and one that is rapidly
developing. Its importance is further highlighted by the
growing evidence of climate change, species extinction,
and large scale poverty, hunger and social inequities in
many countries. While this book predominantly considers
financial accounting and reporting, Chapter 30 focuses
on social-responsibility reporting and provides the most
up-to-date and comprehensive material available on this
important topic with additional material being added on
the important topic of Climate Change—both from an
accounting and scientific perspective—as well as the
inclusion of commentaries on various alternative reporting
frameworks.
Writing a text like this is an extremely time-consuming
exercise and it has been very gratifying that the effort
involved has been rewarded by so many institutions
across Australia (and also some outside Australia) electing
to prescribe previous editions of this book as part of their
accounting programs. Given the success of all previous
editions, every effort has been made to ensure that this
eighth edition is equally valuable to students and teachers,
and that it has been substantially and thoroughly revised.
Preface xvii
05/20/16 12:55 PM
ACKNOWLEDGMENTS
There are many people who must be thanked for their
contribution to the eighth edition of this book. First, our
thanks to the following reviewers of the current edition:
Bobae Choi, University of Newcastle; Sally Chaplin,
Queensland University of Technology; Victoria Clout,
University of New South Wales; Sajan Cyril, Australian
Catholic University; Colin Dolley, Edith Cowan University;
Peter Dryden, Federation University; Hermann Frick,
University of Queensland; Syed Haider, Victoria
University; Andrew Jackson, University of New South
Wales; Arifur Khan, Deakin University; Eric Lee, Monash
University; Janet Lee, Australian National University;
Jinghui Liu, Southern Cross University; Tracey McDowall,
Deakin University; Balachandran Muniandy, La Trobe
University; Puspalila Muniandy, Deakin University;
Gregory Phillip, University of Newcastle; Pranil Prasad,
University of the South Pacific; Maria Prokofieva, Victoria
University; Glenn Rechtschaffen, University of Auckland;
Natasja Steenkamp, Central Queensland University;
Grantley Taylor, Curtin University; Suzanne Mary Taylor,
QUT Business School; Maria Tyler, CQUniversity Mackay
campus; Effiezal Aswadi Abdul Wahab, Curtin University.
This book has also been improved during the course of
the first seven editions by the feedback received from many
people and I would like to acknowledge the contribution that
they have previously made. These people include:
Maria Balatbat, University of New South Wales; Peter
Baxter, University of the Sunshine Coast; Poonam Bir,
Monash University; Phil Cobbin, University of Melbourne;
Lome Cummings, Macquarie University; Matt Dyki, Charles
Sturt University, Wagga Wagga campus; Natalie Gallery,
Queensland University of Technology; John Goodwin,
RMIT University; Deborah Janke, University of Southern
Queensland; Maurice Jenner, University of Southern
Queensland; Graham Jones, Flinders University; Peter
Keet, RMIT University; Janet Lee, Australian National
University; Steven Lesser, Charles Sturt University,
Wagga Wagga campus; Stephen Lim, University of
Technology Sydney; Janice Loftus, University of Sydney;
Wei Lu, Monash University; Diane Mayorga, University
of New South Wales; Kellie McCombie, University of
Wollongong; Malcolm Miller, University of New South
xviii Acknowledgments
dee64022_Prelims_i-xxiv.indd xviii
Wales; Lee Moermon, University of Wollongong; Gary
Monroe, Australian National University; Richard Morris,
University of New South Wales; Anja Morton, Southern
Cross University, Lismore campus; Karen Ness, James
Cook University; Cameron Nichol, RMIT University; Gary
Plugarth, University of New South Wales; Lisa Powell,
University of South Australia; Jim Psaros, University of
Newcastle; Michaela Rankin, Monash University; Andrew
Read, University of Canberra; Kathy Rudkin, University
of Wollongong; Dan Scheiwe, Queensland University
of Technology; Mark Silvester, University of Southern
Queensland; Stella Sofocleous, Victoria University of
Technology; Jenny Stewart, Griffith University; Seng
The, Australian National University; Len Therry, Edith
Cowan University; Matthew Tilling, University of Western
Australia; Irene Tutticci, University of Queensland; Mark
Vallely, University of Southern Queensland; Trevor
Wilmshurst, University of Tasmania; Victoria Wise,
University of Tasmania; Ann-Marie Wyatt, University of
Technology Sydney.
Thanks also go to many of my colleagues at RMIT
University for their friendship and encouragement. The team
at McGraw-Hill Education (Australia) also deserve a great
deal of thanks for helping in the preparation of this book.
Lastly, but certainly not leastly, thanks again go to my
16-year-old daughter Cassandra for all the love and support
she gives me in whatever I seem to be doing and for
continually helping me to put everything into perspective. As
I have said before, she is indeed my finest work (and my most
valuable ‘asset’) and represents that aspect of my life of which
I am most proud.
The publisher would also like to thank the following
digital contributors: Victoria Clout, Parmod Chand, Maria
Prokofieva, Jackie Liu, Maria Balatbat, Eric Lee and
Matt Dyki.
05/20/16 12:55 PM
AACSB STATEMENT

McGraw-Hill Education is a proud corporate member of AACSB1 International. Understanding the importance and value
of AACSB accreditation, Financial Accounting has sought to recognise the curricula guidelines detailed in the AACSB
standards for business accreditation by connecting content and exercises to the general knowledge and skill guidelines
found in the AACSB standards.
The statements contained in Financial Accounting and in its digital resources are provided only as a guide for the
users of this text. The AACSB leaves content coverage and assessment within the purview of individual institutions,
the mission of the institutions, and the faculty. While Financial Accounting and the teaching package make no claim of
any specific AACSB qualification or evaluation, we have, within Financial Accounting identified chapters as containing
content and labelled activities according to the general knowledge and skills areas.2

1
The Association to Advance Collegiate Schools of Business [http://www.aacsb.edu/accreditation/standards.asp]
2
AACSB International 2008, ‘Eligibility procedures and accreditation standards for business accreditation’, www.aacsb.edu

AACSB statement xix

dee64022_Prelims_i-xxiv.indd xix 05/20/16 12:55 PM

HOW
CHAPTER 6TO USE THIS BOOK
REVALUATIONS AND
IMPAIRMENT TESTING OF
NON-CURRENT ASSETS
LEARNING OBJECTIVES (LO) assets and liabilities identified as arising in a lease contract . . . The new approach would treat all lease contracts
as the acquisition of a right to use the leased item for the lease term. Thus, the lessee would recognise the
6.1 Be able to measure the cost of property, plant and equipment. following:
6.2 Understand the meaning of ‘fair value’. (a) an asset representing its right to use the leased item for the lease term (the right-of-use asset)
6.3 Understand how and when to revalue an item of property, plant and equipment in accordance with (b) a liability for its obligation to pay rentals.
AASB 116 Property, Plant and Equipment. The above position was ultimately embraced when IFRS 16 was issued in January 2016 (and AASB 16 was released
6.4 Understand how and when to revalue an intangible asset in accordance with AASB 138 Intangible in Australia in February 2016). Financial Accounting in the Real World 11.1 provides an insight into how the news
Assets. media was reporting the implications of a new accounting standard on leasing.
6.5 Understand the meaning of ‘recoverable amount’ and be able to calculate it.
6.6 Understand the difference in accounting treatments for upward revaluations to ‘fair value’, as
opposed to write-downs to ‘recoverable amount’.
6.7 Understand what an ‘impairment loss’ is and know when and how to account for one in accordance 11.1 FINANCIAL ACCOUNTING IN THE REAL WORLD
with AASB 136 Impairment of Assets.
6.8 Understand how to account for revaluations that reverse previous revaluation increments or Effect on retailers from proposed new rules around lease accounting
decrements.
In 2008, following spectacular corporate collapses like that of Enron, the International Accounting Standards Board
6.9 Understand how to account for accumulated depreciation when a non-current depreciable asset is
(IASB) outlined a proposal that operating leases should be included on a company’s balance sheets in the interest of
revalued, and understand that, subsequent to revaluation, new depreciation charges will be based
transparency for creditors and investors around corporate debt. The IASB was forced into a rethink after a backlash
on the revalued amount of the non-current asset.
from major retailers including Woolworths and Wesfarmers, denouncing the original proposals as complex and
6.10 Know how the profit on disposal of a revalued non-current asset is determined and understand how costly.
asset revaluations can affect an organisation’s profits owing to changes in depreciation expenses Under the latest changes to lease accounting rules put forward by the IASB, retailers such as Woolworths,
and in final gains or losses on the sale of the revalued asset. Wesfarmers, Myer, David Jones, JB Hi-Fi, Harvey Norman, Specialty Fashion and Premier Investments will have to
calculate the net present value of future lease commitments and recognise them as debt on their balance sheets.
Learning objectives
6.11 Understand the meaning of a ‘cash-generating unit’ and why it is relevant to calculating depreciation
and impairment losses. Instead of recognising rent payments as costs incurred, retailers will have to expense theoretical amortisation and
financing costs. This will boost earnings before interest, tax, depreciation and amortisation but will reduce pre-tax and
Each chapter
6.12 Be starts
able to explain with
possible a listthatofmight
motivations
revalue its non-current assets to fair value.
thedrive
chapter’s learning
an organisation to elect, or not elect, to
net profits, as the amortisation and financing costs will exceed rental payments, especially for faster growing retailers

objectives. Theserequirements
6.13 Know the disclosure flag what youtoshould
pertaining know
asset revaluation and when
impairmentyoulosses.have
with relatively new leases. According to a report by Morgan Stanley, the impact on retailers will be ‘considerable’,
blowing out gearing levels and reducing return on capital employed, but will vary from retailer to retailer.
worked through the chapter. Make these the foundation for Reactions to the proposed rules include a report by Morgan Stanley predicting a considerable but varied impact
on retailers including reduced capital return and a blow out of gearing levels. The report says Myer, Specialty
your exam revision by using them to test yourself. The end-of- Fashion and The Reject Shop will be more affected than Kathmandu and Fantastic Furniture as the former have
significant and long-term lease liabilities. Also new retailers like Lovisa, who are early into lease terms will probably
chapter assignments also link back to these learning objectives.
202 PART 3: ACCOUNTING FOR ASSETS
be impacted more than established leaseholder retailers.
Morgan Stanley analyst Tom Kierath says investors aren’t as aware of the change to lease accounting rules as
they should be.
We would then debit the machine account by $5 000 and credit the revaluation surplus by $5 000. This would cause
Chapter introduction
the carrying amount of the asset to be $14 000, which is its fair value. That is, the journal entry would be:
Examples of the financial impact on Myer, Woolworths and Wesfarmers of the new rules clarify their expected
effect.
Myer: net debt $340 million but net present value (NPV) of lease liabilities is $2.2 billion. Debt would rise to
Each chapter begins with an excellent5 000 overview of the material
dee64022_ch06_202-233.indd 202 05/10/16 01:26 PM

Dr Machine $2.5 billion.

Financial accounting in the real world
to
Cr
beRevaluation
covered, surplus
and places it in the broader context 5 000
of how Woolworths: net debt $3 billion but NPV of leases is $15 billion. Debt would rise to $18 billion.
Wesfarmers (Coles, Bunnings, Target, Officeworks): net debt $4 billion and NPV of leases is $12 billion.
topics in various chapters interrelate.
Subsequent depreciation after a revaluation is based on the revalued amount of the non-current asset. It should be Accounting is often a major and controversial part of news
Patricia Stebbens, a KPMG audit partner, believes that some companies will have to renegotiate their debt
noted that an entity cannot account for a downward revaluation simply by increasing the amount of the accumulated covenants with their banks because rule changes would increase gearing ratios.
depreciation by the amount of the revaluation decrement, even though the net effect would be the same. Worked items that hit the headlines. Excerpts from the media put
However, Angus Thompson, the research director of the Australian Accounting Standards Board, believes that
Example 6.1 illustrates the use of the ‘net method’—which nets off accumulated depreciation against the asset prior to
recognition of the fair value increment or decrement.
various aspects of accounting under the spotlight, emphasising
as the new rules are likely to take effect no earlier than January 2018, affected parties have sufficient preparation
time. Although there has been a mixed reaction to the new rules, Thompson is confident of the benefits of increased
how integral it is to business life. They also help students gain
transparency around gearing.

WORKED EXAMPLE 6.1: Revaluation of a depreciable asset using the net-amount method aSOURCE:
wider grasp
Adapted of accounting
from ‘Retailers
23 April 2015, p. 21
byaccounting
face hit from proposed lease presenting opposing
changes’, by Sue viewpoints
Mitchell, The Australian Financial Review,

Assume that, as at 1 July 2018, Farrelly Ltd has an item of machinery that originally cost $40 000 and has accumulated in relation to hot topics. Some show accounting in a historical
depreciation of $15 000. Its remaining life is assessed to be five years, after which time it will have no residual value.
While completing a regular revaluation of all machinery, Farrelly decided on 1 July 2018 that the item should be
context; others relate to contemporary issues.
revalued to its current fair value, which was assessed as $45 000. 382 PART 4: ACCOUNTING FOR LIABILITIES AND OWNERS’ EQUITY

REQUIRED
Provide the appropriate journal entries to account for the revaluation using the net-amount method.
Figures
SOLUTION Figures provide a graphical representation of how events
dee64022_ch11_376-426.indd 382 05/12/16 06:57 AM

The total revaluation increment will represent the difference between the carrying amount and the fair value of the
asset at the date of the revaluation. In this case it would be:
and actions link.
$45 000 - ($40 000 - $15 000) = $20 000
The appropriate journal entries on 1 July 2018 would be:

Dr Accumulated depreciation—machinery 15 000

Tables
Cr Machinery 15 000
Dr Machinery 20 000 Tables provide useful checklists.
Cr Revaluation surplus 20 000

According to AASB 116, future depreciation should be based on the revalued amount of the asset. The depreciation
charge for the year to 30 June 2019 would be $9 000 (the new carrying amount of $45 000 divided by the remaining
Worked examples
useful life of five years). Where the depreciation charges for any financial period have changed materially owing to a
revaluation, the financial effect of the change (that is, the increase or decrease in the depreciation charges) should
Abewide range of detailed scenarios and solutions, some
disclosed in the notes to the financial statements for that financial period.

fairly straightforward and some more complex, are provided

While the demonstrated procedure (applying the net-amount method by which the accumulated depreciation for an
throughout the
asset is adjusted to zero text
upon andis are
revaluation) a great
the general approachlearning aid,
to be followed for helping
revaluations of property, plant and
to reinforce
equipment, AASB 116,how the
paragraph theory
35(a), is
provides an applied
alternative in
treatment. practice
This treatment and
requirestheir
that both the gross
amount of the asset and the accumulated depreciation of the asset be adjusted. This method is sometimes used where
relevance to actual situations.
reference is made to newer assets than those being revalued. Specifically, paragraph 35(a) of AASB 116 states that
when an item of property, plant and equipment is revalued, the accumulated depreciation at the date of the revaluation
can be restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount
of the asset after revaluation equals its revalued amount. This approach is referred to as the ‘gross method’. The gross
method of revaluation is applied in Worked Example 6.2.

xx How to use this book

CHAPTER 6: REVALUATIONS AND IMPAIRMENT TESTING OF NON-CURRENT ASSETS 207

dee64022_ch06_202-233.indd 207 05/10/16 01:26 PM

dee64022_Prelims_i-xxiv.indd xx 05/20/16 12:55 PM

 assets may be understated but should never be overstated in the financial statements. The recoverable amount of an
asset is defined as the higher of an asset’s net selling price and its value in use.
Where an upward revaluation of property, plant and equipment is undertaken, the asset is to be revalued to its
fair value. Revaluations should be undertaken as part of a process that revalues the entire class of assets to which the
revalued non-current asset belongs.
Where an asset is revalued upwards, the increase in the recorded value of the asset is not treated as part of profit
or loss but is transferred to a revaluation surplus and included as part of ‘other comprehensive income’. The only
exception to this rule is where the revaluation increment reverses a previous revaluation decrement, in which case
the revaluation increment will be treated as part of the financial period’s profit or loss to the extent that it reverses the
previous decrement that was included as an expense within profit or loss.
Where an asset is revalued downwards, the decrease in the recorded value of the asset is to be treated as an
expense and included within profit or loss. The only exception to this rule is where the revaluation decrement reverses
a previous revaluation increment, in which case the revaluation decrement will be debited against (deducted from) the
existing revaluation surplus and the related movement included as a reduction to ‘other comprehensive income’.
When a revaluation of a depreciable non-current asset is undertaken, the most common approach is to adopt the
‘net method’ whereby we credit any existing accumulated depreciation against the non-current asset to be revalued,
and subsequently increase the non-current asset account (debit the account) by the amount of the revaluation.
Where a revalued non-current asset is subsequently sold, the gain or loss on disposal is to be measured as the
difference between the carrying amount of the revalued asset as at the time of the disposal, and the net proceeds, if
any, from disposal. The gain or loss must be recognised in the profit or loss for the financial year in which the disposal
of the non-current asset occurs.
The chapter has also considered how revaluations can, at times, loosen certain accounting-based debt covenants,
such as restrictions written around an organisation’s debt-to-assets ratio.

KEY TERMS
Mr Anderson informs you that the directors intend to revalue the property, plant and equipment during the year. The
company has not revalued any assets in the past.

Disclosure requirements LO 7.8

accumulated depreciation 206
REQUIRED
asset revaluation 203
debt-to-assets ratio 224
independent valuation 225
recoverable amount 203
revaluation decrement 206
Where the information is material, paragraph 36 of AASB 102 requires that the financial statements disclose the (a) amount
carrying How would you account for theprudence
203 revaluation 209
of the above assets? revaluation increment 205
following information: (b) What would the relevant journal entries be? LO 6.1 6.2 6.3 6.9
(a) the accounting policies adopted for measuring inventories, including the cost formulas used;
(b) the total carrying amount of inventories and the carrying amount in classifications appropriate to the entity; END-OF-CHAPTER EXERCISES
SOLUTION TO END-OF-CHAPTER EXERCISE
(c) the carrying amount of inventories carried at fair value less costs to sell; (a) In undertaking the revaluations, decisions must be made about what constitutes the relevant classes of
(d) the amount of inventories recognised as an expense during the period; Anderson assets.
Pty LtdAs is we
an Australian
know, when diversified
an item ofindustrial
property,company
plant andwith its majoris business
equipment revalued,activity being
AASB 116 to manufacture
requires that
(e) the amount of any write-down of inventories recognised as an expense in the period; flotation devices for babies
the entire class ofand toddlers.
property, plant Over
andthe past decade,
equipment the business
to which that assethas been very
belongs mustprofitable
be revalued.and Increments
the directors,
(f) the amount of any reversal of any write-down that is recognised as a reduction in the amount of inventories Simon Anderson and Lisa Anderson,
and decrements have kept
are not permitted payment
to be of dividends
offset within to assets.
a class of a minimum to allow
As shown the company
below, to diversify
it is considered that
recognised as an expense in the period; into other two
activities.
classes The
of following is ainlist
assets exist ofcase:
this property,
landplant
usedand equipment
in the held by
organisation’s the company:
operations; and buildings used in the
(g) the circumstances or events that led to the reversal of write-downs of inventories; and organisation’s operations. The calculations for determining increments and decrements are as follows:
(h) the carrying amount of inventories pledged as securities for liabilities. Carrying Current
See Exhibit 7.1 for an example of an accounting policy note, in this case provided by Wesfarmers Ltd in its 2015 amount ($) fairIncrement/
value ($)
Annual Report. Property, plant and equipment Carrying amount Current fair value (decrement)
Factory (NSW) ($) ($) ($)
Land Property, plant and equipment 100 000 150 000
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Exhibit 7.1
Accounting Buildings Land
Inventories – Cost – Factory (NSW) 10070000
000 150 000 50000
80 000
policy note
Recognition and measurement from the 2015 – Factory
– Accumulated (Qld)
depreciation 150(20
000
000) 120 000 (30 000)
–
Inventories are valued at the lower of cost and net realisable value. The net realisable value of Annual Report Buildings—net
Factory (Qld)
inventories is the estimated selling price in the ordinary course of business less estimated costs to sell. of Wesfarmers Land – Factory (NSW) 50
150000
000 80 000 30000
120 000
Key estimate: net realisable value Ltd Buildings – Factory (Qld) 80 000 70 000 (10 000)
The key assumptions, which require the use of management judgement, are the variables affecting – Cost 125 000 70 000
costs recognised in bringing the inventory to location and condition for sale, estimated costs to sell and – Accumulated depreciation (45 000) –
(b) The relevant journal entries are as follows:
the expected selling price. These key assumptions are reviewed at least annually. The total expense
relating to inventory write-downs during the year was $46 million (2014: $19 million). Any reasonable 228 PARTDr Land—factory
3: ACCOUNTING (NSW)
FOR ASSETS 50 000
possible change in the estimate is unlikely to have a material impact.
Costs incurred in bringing each product to its present location and condition are accounted for as
End-of-chapter
Cr
Dr
exercise
Revaluation surplus
Loss on revaluation of land 30 000
50 000

follows: Cr Land—factory (Qld) 30 000

• Raw materials: purchase cost on a weighted average basis.
A comprehensive exercise and worked solution is provided at
Dr Accumulated depreciation (NSW) 20 000
The plant and
dee64022_ch06_202-233.indd 228 equipment originally cost Townend $600 000 in 2016, but due to market conditions 05/10/16the
01:26fair
PM
• Manufactured finished goods and work in progress: cost of direct materials and labour and a the end of each chapter. These are a great revision aid; work
Dr Accumulated depreciation (Qld) 45 000
value of the plant and equipment has increased. The directors of Townend Ltd are concerned about the effects
Cr Buildings—factory (NSW) 20 000
proportion of manufacturing overheads based on normal operating capacity, but excluding of the higher carrying value on profits—owing to the higher depreciation it is reducing profits. They ask you, the
borrowing costs. Work in progress also includes run-of-mine coal stocks for resources, consisting through them before tackling the more challenging questions
Cr Buildings—factory (Qld) 45 000
accountant, to reverse the previous revaluation. Being ethical in nature, what would you do? LO 6.3, 6.12
of production costs of drilling, blasting and overburden removal. 18. Bad Dr CompanyBuildings—factory (NSW) that it acquired in 2017
30at
000
• Retail and wholesale merchandise finished goods: purchase cost on a weighted average basis, to ensure you are on the right track.
Cr
Ltd has some machinery
Revaluation surplus
a cost of $4 000 000. In 2018 it is concerned
about high reported profits—the labour union is considering pushing for additional 30 000wages, but Bad Company Ltd
after deducting any settlement discount and including logistics expenses incurred in bringing the
doesDrnot wantLoss onthem—and
to pay revaluationisofconsequently
buildings considering ways
10 000
to reduce profits. Recently, it has acquired some
inventories to their present location and condition. Cr Buildings—factory (Qld) 10 000
identical machinery to that acquired in 2017. The machinery has been acquired in a liquidation sale of a business
Volume-related supplier rebates, and supplier promotional rebates where they exceed spend on that is in the hands of the bank (owing to the business defaulting on a loan) and the cost is $500 000. After this
promotional activities, are recognised as a reduction in the cost of inventory. purchase, Bad Company Ltd writes down to $500 000 the machinery acquired in 2017 at a cost of $4 000 000. Is
this an appropriate course of action? LO 6.3, 6.4, 6.10, 6.12
Exhibits
SOURCE: Wesfarmer’s Ltd 2015 Annual Report
REVIEW QUESTIONS
19. Petersen Ltd has the following land and building in its financial statements as at 30 June 2018:

These features contain extracts from actual company reports or 1. What effect will an asset revaluation have on subsequent periods’ $ profits? Explain your answer. LO 6.10
2. Residential
Explain the land,
difference in the accounting treatment for 1 revaluation
000 000 increments and revaluation decrements. Do you
documents, or provide a commonly used format for accounting. considerland,
Factory that at
this
at cost
difference
valuation is ‘conceptually sound’? LO900
2016 6.6000
SUMMARY
They highlight the relevance of the chapter content to the 3. Buildings,
When should a revaluation
at valuation 2016increment be included as part profit or loss? LO 6.6, 6.8
of000
800
4. Accumulated
For the purposes (100 000) amount’ determined? LO 6.5
of AASB 116 or AASB 136, how is ‘recoverable
depreciation
practice
The of accounting,
chapter addressed provide
the topic of accounting another
for inventory. Inventory element
is defined tofor the
as assets held topics
sale in the ordinary
course of business, in the process of production for sale, or to be used in the production of goods; and other property
5. When would you determine the recoverable amount for a cash-generating unit rather than for an individual item of
property, plant2018,
At 30 June the balanceLO
and equipment? of6.11
the revaluation surplus is $400 000, of which $300 000 relates to the factory
covered
or and
services for sale, help
including to reinforce
consumable learning.
stores and supplies. land and $100 000 to the buildings. On this same date, independent valuations of the land and building are
CHAPTER 6: REVALUATIONS AND IMPAIRMENT TESTING OF NON-CURRENT ASSETS 229
obtained. In relation to the above assets, the assessed fair values at 30 June 2018 are:
CHAPTER 7: INVENTORY 251

Chapter summary Review questions $

Residential land, previously recorded at cost 1 100 000

Key points of the chapter are summarised in this section. Check These questions ask you to reflect on key topics within the
Factory land, previously
dee64022_ch06_202-233.indd
229
revalued in 2016
Buildings, previously revalued in 2016
700 000
900 000
05/10/16 01:26 PM

chapter, and help cement your learning.

dee64022_ch07_234-257.indd 251 05/11/16 09:41 AM

through it carefully to make sure you have understood topics REQUIRED

covered before moving on. Provide the journal entries to account for the revaluation on 30 June 2018. Petersen Ltd classifies the residential
land and the factory land as different classes of assets. LO 6.3, 6.4, 6.6, 6.9

Key terms CHALLENGING QUESTIONS

Key terms are bolded in the text the first time they are used, 20. What, if anything, is the difference between recoverable amount and fair value? Where revaluations are undertaken,
can a reporting entity use ‘value in use’ as the basis for the revaluation? LO 6.3, 6.5, 6.6
defined in the margin at that point, and listed at the end of 21. Kanga Cairns Ltd owns two blocks of beachfront land, acquired in 2015 for the purposes of future residential
each chapter. They also appear in the glossary at the end development. Block A cost $250 000 and Block B cost $350 000.
Valuations of the blocks are undertaken by an independent valuer on 30 June 2017 and 30 June 2019. The
of the book. assessed values are:

2017 valuation 2019 valuation

($) ($)
Block A 230 000 290 000
Block B 370 000 340 000

REQUIRED
Assuming asset revaluations were undertaken for the land in both 2017 and 2019, provide the journal entries for
both years. LO 6.3, 6.8

CHAPTER 6: REVALUATIONS AND IMPAIRMENT TESTING OF NON-CURRENT ASSETS 231

Challenging questions
These questions require a detailed problem analysis and help
dee64022_ch06_202-233.indd 231 05/10/16 01:26 PM

to build problem-solving and critical thinking skills.

How to use this book xxi

dee64022_Prelims_i-xxiv.indd xxi 05/23/16 12:35 PM

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 order,—no, you can’t either, for you don’t know what a
Chinese servant is when of every three words you speak to
him he understands one, and misunderstands two. However,
we did finally get the machine going, and it works pretty well.

Here they remained three years; and, here, after they had built for
themselves a really “new home,” they long continued to carry on
their school work.
But experience soon convinced them that a new dwelling house
was a necessity. The buildings which they occupied proved to be
both unhealthy and unsuitable for the work they were undertaking.
The unhealthiness arose partly from the location. The ground in that
section of the city is low, and liable to be submerged in the rainy
season. A sluggish little stream ran just in front of the place, passing
through the wall by a low gate, and if this happened to be closed in a
sudden freshet, the water sometimes rose within the houses. There
was a floor at least in the main building, but it was laid upon
scantlings about four inches thick, these being placed on the ground.
The boards were not grooved, and as a consequence while making
a tight enough floor in the damp season, in the dry it opened with
cracks a quarter to half an inch wide. The walls were of stone, built
without lime, and with an excess of mud mortar, and lined on the
inside with sun-dried brick. The result of all this was that the
dampness extended upward several feet above the floor, and by
discoloration showed in the driest season where it had been. The
floor could not be raised without necessitating a change in the doors
and windows, and it was doubtful whether this could be made with
safety to the house. It is no wonder that, under such conditions, Mrs.
Mateer began to suffer seriously from the rheumatism that remained
with her all the rest of her life. Added to the other discomforts, were
the tricks played them by the ceiling. This consisted of cornstalks
hung to the roof with strings, and covered on the lower side with
paper pasted on. Occasionally a heavy rain brought this ceiling down
on the heads of the occupants; and cracks were continually opening,
thus rendering it almost impossible to keep warm in cold weather.
 An appeal was made to the Board for funds for a new dwelling.
Happily the Civil War was about over, and the financial outlook was
brightening; so in the course of a few months permission for the new
house was granted, and an appropriation was made. The first thing
to do was to obtain a suitable piece of ground on which to build.
Mateer had in his own mind fixed on a plot adjoining the mission
premises, and understood to be purchasable. Such transactions in
China seldom move rapidly. He bided his time until the Chinese new
year was close at hand, when everybody wants money; then, striking
while the iron was hot, he bought the ground.
Long before this consummation he was so confident that he would
succeed that, foreseeing that he must be his own architect and
superintendent, he wrote home to friends for specific information as
to every detail of house-building. Nothing seems to have been
overlooked. He even wanted to know just how the masons stand
when at certain parts of their work.
Early in February in 1867 he was down at Chefoo purchasing the
brick and stone and lime; and so soon as the material was on hand
and as the weather permitted, the actual construction was begun. It
was an all-summer job, necessitating his subordinating, as far as
possible, all other occupations to this. It required a great deal of care
and patience to get the foundations put down well, and of a proper
shape for the superstructure which was to rest upon them. In his
Journal he thus records the subsequent proceedings:

When the level of the first floor was reached I began the
brickwork myself, laying the corners and showing the masons
one by one how to proceed. I had no small amount of trouble
before I got them broken in to use the right kind of trowel,
which I had made for the purpose, and then to lay the brick in
the right way. I had another round of showing and trouble
when the arches at the top of the windows had to be turned,
and then the placing of the sleepers took attention; and then
the setting of the upper story doors and windows. The work
went slowly on, and when the level was reached we had quite
a raising, getting the plates and rafters up. All is done,
 however, and to-day they began to put the roof on.... I hope in
a few days I will be able to resume my work again, as all the
particular parts are now done, so that I can for the most give it
into the hands of the Chinese to oversee.

The early part of November, 1867, the Mateers lived “half in the
old and half in the new.” On November 21 they finally moved. That
was Saturday. In the night there came up a fierce storm of snow and
wind. When they awoke on Sabbath morning, the kitchen had been
filled with snow through a door that was blown open. The wind still
blew so hard that the stove in the kitchen smoked and rendered
cooking impossible. The stair door had not yet been hung, and the
snow drifted into the hall and almost everywhere in the house.
Stoves could not be set up, or anything else done toward putting
things in order, until Thursday, when the storm abated.
But they were in their new house. It was only a plain, two-story,
brick building, with a roofed veranda to both stories and running
across the front, a hall in the middle of the house with a room on
either side, and a dining room and kitchen at the rear. Much of the
walls is now covered by Virginia creeper, wistaria, and climbing rose.
It is one of those cozy missionary dwellings which censorious
travelers to foreign lands visit, or look at from the outside; and then,
returning to their own land, they tell about them as evidence of the
luxury by which these representatives of the Christian churches have
surrounded themselves. Yet if they cared to know, and would
examine, they would out of simple regard for the truth, if for no other
reason, testify to the necessity of such homes for the health and
efficiency of the missionaries, and as powerful indirect helps in the
work of social betterment among the natives; and they would wonder
at the self-sacrifice and economy and scanty means by which these
worthy servants of Christ have managed to make for themselves and
their successors such comfortable and tasteful places of abode.
 TENGCHOW MISSION COMPOUND, FROM THE NORTH

Extreme left, Entrance to Dr. Hayes’ House. Behind this, part of back of Dr.
Mateer’s House. Foreground, Vegetable Gardens belonging to Chinese

The Mateer house stands on the compound of the mission of the

Presbyterian Board, which is inside and close to the water gate in
the city wall. About it, as the years went by, were erected a number
of other buildings needed for various purposes. The whole, being
interspersed with trees, combines to make an attractive scene.
There was nothing pretentious about the house, but it was
comfortable, and suited to their wants; and it was all the more dear
to them because to such a large degree it had been literally built by
themselves. Here for more than thirty-one years Julia presided, and
here she died. After that Dr. Mateer’s niece, Miss Margaret Grier,
took charge previous to her marriage to Mason Wells, and continued
for some years subsequent to that event. To this house still later Dr.
Mateer brought Ada, who was his helpmeet in his declining years,
and who still survives. This was the home of Dr. Mateer from 1867 to
1904. It was in it and from it as a center that he performed by far the
larger part of his life work. Here the Mandarin Revision Committee
held its first meeting.
 It was always a genuine home of the most attractive type. What
that means in a Christian land every reader can in a good degree
understand; but where all around is a mass of strange people,
saturated with ignorance, prejudice, and the debased morality
consequent on idolatry, a people of strange and often repulsive
habits of living, the contrast is, as the Chinese visitors often used to
say, “the difference between heaven and hell.” But what most of all
made this little dwelling at Tengchow a home in the truest sense was
the love that sanctified it. Dr. Mateer used in his later years
frequently to say: “In the thirty-five years of our married life, there
never was a single jar.” Nor was this true because in this sphere the
one ruled, and the other obeyed; the secret of it was that between
husband and wife there was such complete harmony that each left
the other supreme in his or her department.
Here many visitors and guests received a welcome and an
entertainment to which such as survive still revert with evidently
delightful recollections. This seems to be preëminently true of some
who were children at the time when they enjoyed the hospitalities of
that home. Possibly some persons who have thought that they knew
Dr. Mateer well, may be surprised at the revelation thus made. One
of those who has told her experience is Miss Morrison, whose father
was a missionary. He died at Peking, and subsequently his widow
and their children removed to one of the southern stations of the
Presbyterian Mission. It is of a visit to this new home at Tengchow
that Miss Morrison writes. She says:

Two of the best friends of our childhood were Dr. Calvin

Mateer and his brother John. We spent two summers at Dr.
Mateer’s home in Tengchow, seeking escape from the heat
and malaria of our more southern region. It could not have
been an altogether easy thing for two middle-aged people to
take into their quiet home four youngsters of various ages; but
Dr. and Mrs. Mateer made us very welcome, and if we
disturbed their peace we never knew it. I remember Mrs.
Mateer as one of the most sensible and dearest of women,
and Dr. Mateer as always ready in any leisure moment for a
 frolic. We can still recall his long, gaunt figure, striding up and
down the veranda, with my little sister perched upon his
shoulders and holding on by the tips of his ears. She called
him “the camel,” and I imagine that she felt during her rides
very much the same sense of perilous delight that she would
have experienced if seated on the hump of one of the tall,
shaggy beasts that we had seen swinging along, bringing coal
into Peking.
Dr. Mateer loved a little fun at our expense. What a
beautiful, mirthful smile lit up his rugged features when
playing with children! He had what seemed to us a
tremendous ball,—I suppose that it was a football,—which he
used to throw after us. We would run in great excitement,
trying to escape the ball, but the big, black thing would come
bounding after us, laying us low so soon as it reached us.
Then with a few long steps he would overtake us, and beat us
with his newspaper till it was all in tatters. Then he would
scold us for tearing up his paper. I remember not quite
knowing whether to take him in earnest, but being reassured
so soon as I looked up into the laughing face of my older
sister.

Of other romps she also tells at length. Several old acquaintances

speak of his love of children, and of his readiness to enter into the
playfulness of their young lives. He dearly loved all fun of an
innocent sort; perhaps it is because of the contrast with his usual
behavior that so many persons seem to put special emphasis on this
feature of his character.
In those early days Pei-taiho in the north, and Kuling and
Mokansan in the south, had not been opened as summer resorts.
Chefoo and Tengchow were the only places available for such a
purpose, and there were in neither of them any houses to receive
guests, unless the missionaries opened theirs. Tengchow became
very popular, on account of the beauty of its situation, the
comparative cleanness of the town, and the proximity to a fine
bathing beach. As a usual thing, if one mentions Tengchow to any of
the old missionaries, the remark is apt promptly to follow: “Delightful
place! I spent a summer there once with Dr. Mateer.” Pleasant as he
made his own home to his little friends, and to veterans and recruits,
he was equally agreeable in the homes of others who could enter
into his spheres of thought and activity. He was often a guest in the
house of Dr. Fitch and his wife at Shanghai, while putting his books
through the press. He was resident for months in the China Inland
Mission Sanitarium, and in the Mission Home at Chefoo. Dr. Fitch
and his wife, and Superintendent Stooke of the Home, tell with
evident delight of his “table talk,” and of other ways by which he won
their esteem and affection.
When the summer guests were flown from Tengchow, the
missionaries were usually the entire foreign community,—a condition
of things bringing both advantages and disadvantages as to their
work. On the one hand, the cause which they represented was not
prejudiced by the bad lives of certain foreigners coming for
commercial or other secular purposes from Christian lands. On the
other hand, they were left without things that would have ministered
immensely to their convenience and comfort, and which they often
sadly needed for their own efficiency, and for their health and even
for their lives. This was largely due to the tedious and difficult means
of communication with the outside world. For instance, it was six
weeks until the goods which the Mateers left behind them at Chefoo
were delivered to them at Tengchow. Letters had to be carried back
and forth between Tengchow and Chefoo, the distributing point, by
means of a private courier. When, by and by, the entire band joined
together and hired a carrier to bring the mail once a week, this
seemed a tremendous advance. The cost of a letter to the United
States was forty-five cents.
But the most serious of all their wants was competent medical
attention. How Mateer wrote home, and begged and planned, and
sometimes almost scolded, about sending a physician to reinforce
their ranks! In the meantime they used domestic remedies for their
own sick, or sent them overland to Chefoo, or in case of dire
necessity brought up a physician from that city. Mateer soon found
himself compelled to attempt what he could medically and surgically
for himself and wife, and also for others, and among these the poor
native sufferers. One of his early cases was a terribly burnt child
whom he succeeded in curing; and another was a sufferer from
lockjaw, who died in spite of all he could do; and still another case
was of a woman with a broken leg. He tried his hand at pulling a
tooth for his associate, Mr. Mills, but he had to abandon the effort,
laying the blame on the miserable forceps with which he had to
operate. Later he could have done a better job, for he provided
himself with a complete set of dental tools, not only for pulling teeth
and for filling them, but also for making artificial sets. All of these he
often used. On his first furlough he attended medical lectures at
Philadelphia and did a good deal of dissection. A closet in the new
house held a stock of medicines, and by administering them he
relieved much suffering, and saved many lives, especially in
epidemics of cholera. The physicians who, in response to the
appeals of the missionaries, were first sent to the station at
Tengchow did not remain long; and for many years the most of the
medicine administered came out of the same dark closet under the
stairs of “the New Home.”
 VI
HIS INNER LIFE

“I am very conscious that we here are not up to the standard that we ought
to be, and this is our sin. We pray continually for a baptism from on
high on the heathen round us; but we need the same for ourselves
that we may acquit ourselves as becomes our profession. Our
circumstances are not favorable to growth either in grace or in mental
culture. Our only associates are the native Christians, whose piety is
often of a low type; it receives from us, but imparts nothing to us.
Mentally we are left wholly without the healthy stimulus and the
friction of various and superior minds which surround men at home.
Most whom we meet here are mentally greatly our inferiors, and there
is no public opinion that will operate as a potent stimulus to our
exertions. It may be said that these are motives of a low kind. It may
be so; but their all-powerful influence on all literary men at home is
scarcely known or felt till the absence of them shows the
difference.”—letter to the society of inquiry, in the western
theological seminary, October 1, 1867.

We have now reached a stage in this narration where the order of

time can no longer be followed, except in a very irregular manner.
We must take up distinct phases of Mateer’s life and work, as
separate topics, and so far as practicable consider each by itself.
This is not at all because in him there was any lack of singleness of
aim or of persistence. This man, from the time when he began his
labors in China until he finished his course, without interruption, put
his strength and personality into the evangelization of the people of
that great empire. But in doing this he found it necessary to follow
along various lines, often contemporaneously, though never out of
sight of any one of them. For our purpose it is best that to some
extent they should be considered separately.
But before we proceed further it appears desirable to seek an
acquaintance with his inner life. By this I do not mean his native
abilities, or his outward characteristics as these were known and
read by all men who came much into contact with him. It is from the
soul life, and especially the religious side of it, that it seems desirable
to lift the veil a little. This in the case of anyone is a delicate task,
and ought to be performed with a good deal of reserve. In the
instance now in hand there is special difficulty. Mateer never, either
in speech or in writing, was accustomed to tell others much about his
own inward experiences. For a time in his letters and in his Journal
he occasionally breaks over this reticence a little; but on November
27, 1876, he made the last entry in the Journal; and long before this
he had become so much occupied with his work that he records very
little concerning his soul life. Still less had he to say on that subject in
his letters; and as years went by, his occupations compelled him to
cut off as much correspondence as practicable, and to fill such as he
continued with other matters. Nothing like completeness
consequently is here undertaken or is possible.
A notion that is current, especially among “men of the world,” is
that a missionary is almost always a sentimental dreamer who
ignores the stern realities of life. It has been my work to train a good
many of those who have given themselves to this form of Christian
service, and to have a close acquaintance with a good many more;
and I cannot now recall one of whom such a characteristic could be
honestly affirmed. I have in mind a number of whom almost the
opposite is true. Certainly if to carry the gospel into the dark places
of the earth with the conviction of its ultimate triumph is to be called
dreaming, then every genuine missionary is a sentimentalist and a
dreamer; and Mateer was one of them. But in meeting the
experiences of life and in doing his work, he was about as far
removed from just accusation of this sort as anyone could be.
Indeed, he was such a matter-of-fact man that his best friends often
wished that he were less so. I have carefully gone over many
thousands of pages of his Journal and of his letters and papers, and
I recall only one short paragraph that savors of sentimentality. It is so
exceptional that it shall have a place here. In a letter written to a
friend (Julia, I suspect), in the spring of 1861, he says:
 I have lived in the country nearly all my life, and I much
prefer its quiet beauty. I love to wander at this season over
the green fields, and listen to the winds roaring through the
young leaves, and to sit down in the young sunshine of spring
under the lee of some sheltering bank or moss-covered rock. I
love to think of the past and the future, and, thus meditating,
to gather up courage for the stern realities of life.

This is not very distressingly Wertherian, and surely ought not,

ever after, to be laid up against the young man, the fountain of
whose thoughts may at that season have been unsealed by love.
But we sadly miss the truth if we infer that, because he was so
matter-of-fact in his conduct, he was without tenderness of heart or
depth of feeling. Dr. Goodrich in his memorial article in the “Chinese
Recorder” of January, 1909, says of him:

I do not remember to have heard him preach, in English or

Chinese, when his voice did not somewhere tremble and
break, requiring a few moments for the strong man to conquer
his emotion and proceed. His tenderness was often shown in
quiet ways to the poor and unfortunate, and he frequently
wept when some narrative full of pathos and tears was read.
The second winter after the Boxer year the college students
learned to sing the simple but beautiful hymn he had just
translated, “Some one will enter the Pearly Gate.” One
morning we sang the hymn at prayers. Just as we were
ending, I looked around to see if he were pleased with their
singing. The tears were streaming down his face.
This sympathetic tenderness was as much a part of his
nature as was his rugged strength.... He dearly loved little
children, and easily won their affection. Wee babies would
stretch out their tiny arms to him, and fearlessly pull his beard,
to his great delight.
His students both feared him and loved him, and they loved
him more than they feared him; for, while he was the terror of
 wrongdoers and idlers, he was yet their Great-heart, ready to
forgive and quick to help. How often have we seen Dr.
Mateer’s students in his study, pouring out their hearts to him
and receiving loving counsel and a father’s blessing! He loved
his students, and followed them constantly as they went out
into their life work.

A lady who was present tells that when the first of his “boys” were
ordained to the ministry he was so overcome that the tears coursed
down his cheeks while he charged them to be faithful to their vows.
His mother’s love he repaid with a filial love that must have been
to her a source of measureless satisfaction. Julia could not
reasonably have craved any larger measure of affection than she
received from him as her husband; and later, Ada entered into
possession of the same rich gift. One of the things that touched him
most keenly when he went away to China was his separation from
brothers and sisters, toward whom he continued to stretch out his
beneficent hand across the seas.
He was a man who believed in the necessity of regeneration by
the Holy Spirit in order to begin a genuinely Christian life. This is one
of those great convictions which he never questioned, and which
strengthened as he increased in age. When he united with the
church in his nineteenth year, he thereby publicly declared that he
was sufficiently sure that this inward change had passed upon him to
warrant him in enrolling himself among the avowed followers of
Christ. But of any sudden outward religious conversion he was not
conscious, and made no profession. In the brief autobiographical
sketch previously quoted he says:

I had a praying father and mother, and had been faithfully

taught from my youth. I cannot tell when my religious
impressions began. They grew up with me, but were very
much deepened by the faithful preachings of Rev. I. N. Hays,
pastor of the church of Hunterstown, especially in a series of
meetings held in the winter of 1852-3.
 As to his external moral conduct there was no place for a visible
“conversion”; he had no vicious habits to abandon, no evil
companions from whom to separate himself. It was on the inner life
that the transformation was wrought, but just when or where he
could not himself tell,—an experience which as to this feature has
often been duplicated in the children of godly households.
The impression which I formed of him while associated with him in
college was that he lived uprightly and neglected no duty that he
regarded as obligatory on him. I knew that he went so far beyond
this as to be present at some of the religious associations of the
students, such as the Brainard Society, and a little circle for prayer;
and that he walked a couple of miles into the country on Sabbath
morning to teach a Bible class in the Chartiers church. If I had been
questioned closely I probably would have made a mistake, not unlike
that into which in later years those who did not penetrate beneath
the surface of his life may easily have fallen. I would have said that
the chief lack in his piety was as to the amount of feeling that
entered into it. I would have said that he was an honest, upright
Christian; but that he needed to have the depths of his soul stirred by
the forces of religion in order that he might become what he was
capable of, for himself and for others. Possibly such an expression
concerning him at that time of life might not have been wholly without
warrant; but in later years it certainly would have been a gross
misjudgment, and while I was associated with him in college and
seminary it was far less justified than I imagined.
On October 13, 1856, he began the Journal which, with
interruptions, he continued for twenty years. In the very first entry he
gives his reasons for keeping this record, one of which he thus
states:

I will also to some extent record my own thoughts and

feelings; so that in after years I can look back and see the
history of my own life and the motives which impelled me in
whatever I did,—the dark and the bright spots, for it is really
the state of one’s mind that determines one’s depressions or
enjoyments.
 He records distinctly that the Journal was written for his own eye
alone. One in reading it is surprised at the freedom with which
occasionally he passes judgment, favorable and unfavorable, on
people who meet him on his way. Concerning himself also he is
equally candid. Most that he has to say of himself relates to his
outward activities, but sometimes he draws aside the veil and
reveals the inmost secrets of his soul and of his religious life. As a
result we discover that it was by no means so calm as we might
suppose from looking only at the surface. In this self-revelation there
is not a line that would be improper to publish to the world. A few
selections are all that can be given here. A certain Saturday
preceding the administration of the Lord’s Supper was kept by
himself and other college students as a fast day, and after
mentioning an address to which he had listened, and which strongly
appealed to him, he goes on to say:

I know that I have not been as faithful as I should. Though

comparatively a child in my Christian life, as it is little more
than a year since I was admitted to the church, yet I have
come to the table of the Lord with my faith obscured, my heart
cold and lifeless, without proper self-examination and prayer
to God for the light of his countenance. I have spent this
evening in looking at my past life and conversation, and in
prayer to God for pardon and grace to help. My past life
appears more sinful than it has ever done. My conduct as a
Christian, indeed, in many things has been inconsistent. Sin
has often triumphed over me and led me captive at its will. I
have laid my case before God, and asked him to humble me,
and prepare me to meet my Saviour aright. O that God would
meet me at this time, and show me the light of his
countenance, and give me grace and strength; that for the
time to come I might lay aside every weight and the sins that
do so easily beset me, and run with patience the race that is
set before me! There seems to be some unusual interest
manifested by some just now; so that I am not without hope
that God will bless us and perhaps do a glorious work among
us. Many prayers have this day ascended to God for a
 blessing, and if we are now left to mourn the hidings of God’s
face, it will be because of our sins and our unbelief. I have
endeavored to keep this as a true fast day; yet my heart tells
me that I have not kept it as I should. Sin has been mingled
even in my devotions. Yet I am not without hope, because
there is One whose righteousness is all-perfect, whose
intercessions are all-prevalent. Blessed be God for his
unspeakable gift.

The next day, however, among other things, he wrote:

I think that I have never enjoyed a communion season so

much.... This day my hopes of heaven have been
strengthened, and my faith has been increased; and if I know
my own heart, (O that I knew it better!), I have made a more
unreserved consecration of myself to God than I have ever
done before; and may he grant me grace to live more to his
glory!

Surely, the young man who thus opens to our view the secrets of
his inner religious life was not lacking seriously in depth of feeling.
One is reminded of the Psalmist’s hart panting after the water
brooks.
In the seminary he still had seasons of troubled heart-searching
and unsatisfied longings for a better Christian life. After reading a
part of a book called “The Crucible,” he says:

I have not enjoyed this Sabbath as I should. My own heart

is not right, I fear. I am too far from Christ. I am overcome by
temptation so often, and then my peace is destroyed, and my
access to a throne of grace is hindered. I am ready to exclaim
with Paul, “Oh, wretched man that I am, who shall deliver me
from this body of death!” Would to God I could also say with
the assurance he did: “I thank God, through our Lord Jesus
Christ.”
 At the same time there is evidence that he was advancing toward
a higher stage of religious experience, and that he was leaving
behind him the elements of repentance and faith, and going on
toward “perfection.” He reads the Life of Richard Williams, the
Patagonian missionary, and then sits down and writes:

He was a wonderful man; had a wonderful life. His faith

transcends anything I have ever had. His communion with
God was constant and joyous, at times rising to such a pitch
that, in his own words, “he almost imagined himself in
heaven.” His resignation to God’s will and consecration to his
service were complete in the highest. In his life and in his
death is displayed in a marvelous manner the power of God’s
grace. Reduced almost to the certainty of death by scurvy, in
a little, uncomfortable barge or float, with scarce any
provisions, far from all human help, in the midst of storms and
cold, this devoted man reads God’s Word, prays to him from
his lowly couch, and deliberately declares that he would not
exchange places with any man living! What godlike faith!
What a sublime height to reach in Christian life in this world! I
am more and more convinced that our enjoyment of God and
sweet sense of the presence of Christ as well as our success
in glorifying God depends entirely on the measure of our
consecration to him, our complete submission of our wills to
his. My prayer is for grace thus to consecrate and submit
myself to his will. Then I shall be happy.

I do not think that Mateer had any disposition to follow in the

footsteps of Williams by tempting Providence through doubtful
exposure of his life and health to danger; it was the consecration to
the service of God that he coveted. He seems about this time to
have made a distinct advance in the direction of an increasing desire
to give himself up wholly to the service of his divine Master, and to
submit himself entirely to the will of God. A most severe test of this
came to him in the questions of his duty as to foreign missions. First,
it was whether he ought to go on this errand, and whether he was
willing. Nor was it an easy thing for him to respond affirmatively. He
was a strong man, and conscious of his strength. For him to go to
the unevangelized in some distant part of the world was to put aside
almost every “fond ambition” that had hitherto attracted him in his
plans for life. Opportunities to do good were abundantly open to him
in this country. Tender ties bound his heart to relatives and friends,
and the thought of leaving them with little prospect of meeting them
again in this world was full of pain. To go as a missionary was a far
more severe ordeal fifty years ago than it is in most cases to-day.
Bravely and thoroughly, however, he met the issue. Divine grace was
sufficient for him. He offered himself to the Board and was accepted.
Then followed another test of his consecration just as severe. For a
year and a half he had to wait before he ascertained that after all he
was to be sent. There were times when his going seemed to be
hopeless; and he had to learn to bow in submission to what seemed
the divine will, though it almost broke his heart. When, late in 1862,
one of the secretaries told him that unless a way soon opened he
had better seek a permanent field at home, he says in his Journal:

It seems as if I cannot give it up. I had such strong faith that

I should yet go.... I had a struggle to make up my mind, and
now I cannot undo all that work as one might suppose. What
is it? Why is it, that my most loved and cherished plan should
be frustrated? God will do right, however; this I know. Help
me, gracious God, to submit cheerfully to all thy blessed will;
and if I never see heathen soil, keep within me at home the
glorious spirit of missions.

It was a severe school of discipline to which he was thus sent, but

he learned his lesson well.
One cannot think it at all strange that under the conditions of the
outward voyage he suffered at times from spiritual depression.
November 19, 1863, he made this entry in his Journal:

Spent the forenoon in prayer and in reading God’s Word, in

view of my spiritual state. I have felt oppressed with doubts
 and fears for some time, so that I could not enjoy myself in
spiritual exercises as I should. I have had a flood of anxious
thoughts about my own condition and my unfitness for the
missionary work. I began the day very much cast down; but,
blessed be God, I found peace and joy and assurance in
Christ. In prayer those expressions in the 86th Psalm, “ready
to forgive,” and “plenteous in mercy,” were brought home to
my heart in power. I trust I did and do gladly cast myself
renewedly on Jesus, my Saviour. Just before dinner time I
went out on deck to walk and meditate. Presently my attention
was attracted by Georgie (Mrs. B’s little girl) singing in her
childish manner the words of the hymn, “He will give you
grace to conquer.” Over and over again she said it as if
singing to herself. They were words in season. My heart
caught the sound gladly, and also repeated it over again and
again, “He will give you grace to conquer.” I thought of the
parallel Scripture, “My grace is sufficient for thee.” The Spirit
of God was in those words, and they were precious. My fears
were all gone. I was ready to go, in the strength of this word,
to China, and undertake any work God should appoint. I went
to my room, and with a full heart thanked God for this
consolation. Out of the mouth of babes thou hast ordained
strength. I am glad that I gave this season to special seeking
of God; it has done me good. Lord, make the influence of it to
be felt. I had much wandering of mind at first, but God
mercifully delivered me from this. O, that I could maintain
habitually a devotional spirit, and live very near to the blessed
Jesus!

Though he but dimly understood it then, the Lord was in the school
of experience disciplining him in qualities which in all his subsequent
work he needed to put into exercise: to rest on the promises of God
in darkness, to wait patiently under delays that are disappointing,
and to endure in the spirit of Christ the contradictions of the very
sinners for whose higher welfare he was willing to make any
sacrifice, however costly to himself.
 On his field of labor he was too busy with his duties as a
missionary to write down much in regard to his own inner life. Nor is
there any reason to regard this as a thing greatly to be regretted.
The fact is that during the decade which extended from his
admission to membership in the church to his entrance on his work
in China, he matured in his religious experience to such a degree
that subsequently, though there was increasing strength, there were
no very striking changes on this side of his character. In the past he
had set before himself, as a mark to be attained, the thorough
consecration of himself to the service of God, and it was largely
because by introspection he recognized how far he fell short of this
that he sometimes had been so much troubled about his own
spiritual condition. Henceforth this consecration, as something
already attained, was constantly put into practice. He perhaps
searched himself less in regard to it; he did his best to live it.
In connection with this, two characteristics of his inner life are so
evident as to demand special notice. One of these was his
convictions as to religious truth. He believed that the Scriptures of
the Old and New Testament are the Word of God, and he was so
sure that this is radically essential in the faith of a missionary that he
was not ready to welcome any recruit who was adrift on this subject.
He believed also with like firmness in the other great evangelical
doctrines set forth in the symbols and theologies of the orthodox
churches. His own creed was Calvinistic and Presbyterian; yet he
was no narrow sectarian. He was eager to coöperate with the
missionaries of other denominations than his own; all that he asked
was that they firmly hold to what he conceived to be the essentials of
Christianity. Because he believed them so strongly, these also were
the truths which he continually labored to bring home to the people.
In a memorial published by Dr. Corbett concerning him, he says:

Nearly thirty years ago I asked an earnest young man who

applied for baptism, when he first became interested in the
truth. He replied: “Since the day I heard Dr. Mateer preach at
the market near my home, on the great judgment, when
everyone must give an account to God. His sermon made
 such an impression on my mind that I had no peace until I
learned to trust in Jesus as my Saviour.” An able Chinese
preacher, who was with me in the interior, when the news of
Dr. Mateer’s death reached us, remarked, “I shall never forget
the wonderful sermon Dr. Mateer preached a few weeks ago
in the Chinese church at Chefoo, on conscience.” This was
the last sermon he was permitted to preach. Salvation
through faith in the Lord Jesus Christ, man’s sinfulness and
need of immediate repentance, and faith, and the duty of
every Christian to live a holy life and constantly bear witness
for Jesus, were the great truths he always emphasized. He
died in the faith of the blessed gospel he so ably preached for
nearly half a century.

Hand in hand with these great convictions went an absolute loyalty

to duty. To this he subordinated everything else. The reason why he
toiled with his own hands, on buildings, on machinery, on apparatus,
was not because he would rather do this than preach Christ, but
because he was convinced that the situation was such that he could
not with a good conscience refuse to perform that labor. It was not
his preference to give long years to the making of the Mandarin
version of the Scriptures; he did it because plainly it was his duty to
engage in this wearisome task. He fought with his pen his long battle
for Shen as the word to be used in Chinese as the name of God; and
even when left in a commonly conceded minority, still refused to
yield, only because he believed that in so doing he was standing up
for something that was not only true but of vital importance to
Christianity in China. His unwillingness under protracted pressure to
introduce English into the curriculum of the Tengchow school and
college, the heartbreak with which he saw the changes made in the
institution after its removal to Wei Hsien, were all due not to
obstinancy but to convictions of duty as he saw it.
A man of this sort,—strong in intellect, firm of will, absolutely loyal
to what he conceives to be his duty,—travels a road with serious
perils along its line. A loss of balance may make of him a bigot or a
dangerous fanatic. Even Dr. Mateer had “the defects of his qualities.”