Accounting Theory 4 - 1063 Words

Fair value or false accounting 1. How are assets and liabilities measured under IAS 39? Answer: According to IAS 39, Financial Instruments: Recognition and Measurement, financial instrument are to be stated at their ‘fair value’- defined as ‘the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction’. ‘If the market for a financial instrument is not active, an entity establishes a fair value by using valuation technique†¦.(including) discounted cashflow analysis and option pricing models,’ says IAS 39. ‘A gain or loss on a financial asset or financial liability classified as at fair value through profit or loss shall be recognized†¦show more content†¦This assumes that it has some liquidity and market value (some use and value to someone else) and that it trades in a reasonably efficient market. Otherwise, the asset is not an investment, but merely a possession, which may bring great happiness but will not serve as a store of wealth. Assets may be used to store wealth, create income, and reduce future expenses. Assets Store Wealth If the asset is worth more when it is resold than it was when it was bought, then you have earned a capital gaincapital gainWealth created when an asset is sold for more than the original investment.: the investment has not only stored wealth but also increased it. Assets Create Income Some assets not only store wealth but also create income. For example, an investment in a share of stock stores wealth and also perhaps creates dividend income. A deposit in a savings account stores wealth and creates interest income. Some investors care more about increasing asset value than about income. For example, an investment in a share of corporate stock may produce a dividend, which is a share of the corporation’s profit, or the company may keep all its profit rather than pay dividends to shareholders. Reinvesting that profit in the company may help the company to increase in value. If the company increases in value, the stock increases in value, increasing investors’ wealth. Further, increases in wealth through capital gains are taxedShow MoreRelatedFinancial Accounting Theory, Chapter 4 Answers Essay1146 Words   |  5 PagesAssignment 4-2: Week 4 Analysis Write-Up Kylie Keener ACCT715-Q1WW Financial Accounting Theory Michael Miller 13 June 2012 1. Chapter 4:  Problem 8 (GM) The article â€Å"GM to Take Charge of $20.8-Billion† here reproduced from The Globe and Mail (February 2, 1993) describes the potential impact of SFAS 106, â€Å"Accounting for Postretirement Benefits Other Than Pensions,† on General Motors and Ford. For example, it appears that General Motors will be required to record a liability of $20.8 billionRead More3101AFE Seminar Questions from Seminars 1 6 Sem 1 20151558 Words   |  7 Pagesï » ¿3101AFE Accounting Theory and Practice Seminar Questions for Seminars 1- 6: Semester 1 2015 SEMINAR 1 - Semester 1 2015 Deegan Topic 1: Introduction to financial accounting theory QUESTION 1 – Question 1.2: If you developed a theory to explain how a person’s cultural background influences how they prepare financial statements, would you have developed a positive theory or a normative theory? QUESTION 2 - Question 1.3: What is a conceptual framework, and would it be considered to be a positiveRead MoreAgency Theory and Accounting Choice1142 Words   |  5 Pages CHAPTER ONE INTRODUCTION 1.1 BACKGROUND TO THE STUDY This study analyses the effect of the agency theory and accounting choice usually been made by managers of Nigeria listed companies. It (agency theory and accounting choice) can be demonstrated in the modern day companies where management is usually separated from the ownership of business. The professional managers are supposed to make decisions and take actions that are consistent with the objective of maximising shareholders wealth. But thisRead MoreFinancial Management1486 Words   |  6 Pagesof Contents Introduction 2 Summary of the Article 2 Overview of Positive Accounting 2 Research Question 3 Theoretical Framework: 3 The Significance and Limitations of the Article: 4 Findings of Article 4 Conclusions 5 Bibliography 5 References 6 Introduction The main purpose of this report is to focus the positive accounting theory â€Å"Towards a Positive Theory of the Determination of Accounting Standards† and written by (Watts Zimmerman, 1978) Ross L. Watts and JeroldRead MorePSYC310 Portfolio Project Rollins Essay1575 Words   |  7 Pagesï » ¿ A Psychological Approach to Working in the Accounting Field Sarah Rollins Bryant and Stratton College PSYC310: Organizational Psychology Professor Achim June 18, 2014 The United States Census Report from 1870 indicated â€Å"the occupations of females, an analysis of the numbers reported†¦ shows a curious, though probably not significant, rate of progression† (Walker, 1870, para. 7). Little did the United States Government realize that less than a century later women in the workforce wouldRead MoreAcc 541 Accounting Standards Board Paper1116 Words   |  5 PagesAccounting Standards Boards Leslie Brian ACC/541 November 14, 2011 Delphine Agnor Wolsker Accounting Standards Boards The field of accounting is constantly evolving. This is true not only for the theory of accounting itself but also the entities that govern its theory and practice. Presently, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are faced with some of the biggest challenges to date. To understand the significanceRead More7101AFE Financial Accounting Theory And Practice Essay970 Words   |  4 Pagesï » ¿7101AFE Financial Accounting Theory and Practice Tutorial Questions for Tutorials 1- 6: Semester 1 2015 TUTORIAL 1 - Semester 1 2015 Deegan Topic 1: Introduction to financial accounting theory QUESTION 1 – Question 1.2: If you developed a theory to explain how a person’s cultural background influences how they prepare financial statements, would you have developed a positive theory or a normative theory? The first of all, it is important to understand the mean by a ‘theory’. According to ContemporaryRead MoreResearch on the Influence of Informatization1698 Words   |  7 PagesRunning head: RESEARCH ON THE INFLUENCE OF INFORMATIZATION 1 Research on The Influence of Informatization On The Accounting Theories and Practices and Real-time Control in China Yang Lu Fairleigh Dickinson University RESEARCH ON THE INFLUENCE OF INFORMATIZATION 2 Abstract The 21st century is an information age of rapid development and the computer is more and more widely used in everyRead MoreMeasurement Approach to Decision Usefulness1497 Words   |  6 Pagesincorporate CURRENT VALUE ACCOUNTING directly in to the F/S Provided â€Å"reasonable (37) reliability† iv. v. a. b. As part of an â€Å"increased obligation† of the accounting profession â€Å"To assist investors to predict future performance and value† Performance = N.I. Value = share price vi. Via a â€Å"more informative information system† †¢ QUALIFIERS i. ii. (185) â€Å"Beta is the only relevant risk measure according to the CAPM† â€Å"there is evidence that accounting variables †¦ do a betterRead MoreManagerial Accounting Hilton Quiz1 Answers1526 Words   |  7 Pagesmanagement team. | | | D) | The activities performed by the management accountant are administrative in nature and typically do not add value to the company. | | | E) | A and D are both true. | | | | | | Feedback: The role of managerial accounting is very different now than it was even a decade ago. In the past, managerial accountants operated in a strictly staff capacity, usually physically separated from the managers for whom they provided reports and information. Nowadays, managerial accountants