In 1950, 1951 and early 1952, the taxpayer purchased supplies from its U.S. parents and gave promissory notes evidencing the U.S.-dollar amounts owing by it in respect of the unpaid purchase prices. In its accounts (but not for purposes of its initially-filed tax returns), the taxpayer recorded the Canadian-dollar equivalent of the amounts owing at the times of purchase, and re-translated the amounts owing at each year end. The notes were paid off in 1951 and 1952, when the Canadian dollar had appreciated.
The taxpayer's profit for 1952 was based on the difference between (a) the amount actually paid by it, and (b) the Canadian-dollar equivalent of the amount owing at the beginning of the year translated at the December 31, 1951 exchange rate. The initially-recorded Canadian dollar equivalent of the purchase prices was itself an estimate, and there was no reason for not revising this estimate at each year-end in accordance with ordinary commercial principles. Such an accounting system did not entail the anticipation of future profits, but instead entailed the revision of an estimate of a liability which actually had been incurred.