• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

The Nature of Income measurements

Extracts from this document...

Introduction

University Of Hertfordshire De Havilland Business School Module Title: Financial Reporting and Analysis Module (course) Code: MBSP 00o5 Module Tutor: Jane Waksman Academic Year: Semester B-2004 Financial Reporting and Analysis Title: The Nature of Income measurements Word count: 1,864 By ZhenZheng MAO 03058775 Hand in Date: 30th -Apr-2004 To discuss whether the financial statements are usefulness, the most important criteria are whether they can provide useful information to the users (Scott 2003). Theory and practice of financial reporting are typically centered on the notion of income measurement. However, Beaver and Demski (1979) argued that income measurement exists in a world of complete and perfect markets, but not necessarily otherwise. Thus, the financial statements will be little useful in the real world since they are more centered on the income measurement. According to the FASB's conceptual framework, the primary purpose of financial statements is to provide information to some defined class of users, and financial statement must communicate useful information to the market, not just to existing investors in the firm. There is another important purpose of financial statements, which is future-oriented, is to provide the information to help investors estimate future payoffs. ...read more.

Middle

He introduces the present value concept, present values replace the balance sheet values of net assets adopted by the accountant. The economic value of the business at each certain point will be based on the discounted cash flow of the future years. It can be seen that the difference between accounting and economic capital is one of measurement. As Boulding (1962) points out; whereas accountants measure capital in terms of actualities as the by-product of the income measurement process, economists measure it in terms of potentialities in order to measure economic income. However, in the real worlds, the economic income is suitable. Since, in a dynamic economy, values are changing both because prices and expectations are changing, this income cannot be computed objectively and therefore is impractical for business. Predicting the amount and timing of cash flows and choice of an appropriate discount rate approximating the entity's opportunity cost presents considerable problems (Alexander (1977). To explore the nature of income measurement, Beaver and Demski (1979) adopt a fundamental measurement perspective. Fundamental measurement relates the idea that shareholders are unanimity to agree on "more income is better than less". Where income is measured under economic concept, which can provide useful information for individual shareholders to rank alternative production plans for the various firms in the economy. ...read more.

Conclusion

Reference: Alexander, S.S. "Income Measurement in a Dynamic Economy", (Revised by D. Solomons) in Baxter and Davidson (eds), Studies in Accounting Theory, ICAEW:1977. Beaver, W. and J. Demski, (1979), "On the nature of Income Measurement," The Accounting Review, January, Vol. LIV. No.1, pp.38-46. Boulding, K. (1962), "Economics and Accounting: the Uncongenial Twins", in Baxter and Davidson (eds), Studies in Accounting Theory, Sweet and Maxwell, 1962 pp44-55. Elliott, B. and J. Elliott, (2002), Financial Accounting and Reporting. 6th ed., Prentice Hall. England. Fisher,I., (1930),The Theory of Interest ,Macmillan,New York. Grinyer, J. R. and I. W. Symon (1980), "Maintenance of Capital Intact: An Unnecessary Abstraction?" Accounting and Business Research, AUTUNMN, PP403-413. Hicks,J.R., (1946),Value and Capital:An Inquiry into some Fundamental Principles of Economic Theory ,Clarendon Press,Oxford. Lee, T.A. (1985), Income and Value Measurement: Theory and Practice, Wokingham,England: Van Nostrand Reinhold (UK) Co. Ltd, 3rd Edition, 1985. James,S., (2002),"The Future International Tax Environment ",in A.Lymer and J. Hasseldine (eds.)The International Taxation System, Kluwer Academic Publishers, Boston, pp.105-119. Ohlson, J. A., (1987), "On the nature of income measurement: The basic results". Contemporary Accounting Research (Autumn): 1-15. Scott, W., (2003), Financial Accounting Theory. 3rd ed., Prentice Hall. England. Solomons, D. (1961) "Economics and Accounting Concept of Income", The Accounting Review, Vol 36, July 1961, pp 374-383. 1 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Accounting & Finance section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Accounting & Finance essays

  1. Peer reviewed

    Stock Market Crash

    5 star(s)

    The causes for it are similar to the crash of 1929. This stock market crash started in Shanghai Stock Exchange. The main reason for it was a high level of speculations. The P/E ratios were growing rapidly, tempting people to buy more stocks.

  2. In this assignment I am opening a tuck shop in the school grounds and ...

    anum Total fixed cost = �2160.60 anum Variable costs Stock (crisp, dinks, and chocolates) Crisps = 15p Drinks = 20p Chocolates = 17p Total variable cost = 52p Average cost = 52p/3 = 17.3333p (rounded to 17p) Revenue (selling price)

  1. Unit 5 Introduction to Accounting

    This is why investors should look at measures such as free cash flow. Fixed assets A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be consumed or converted into cash any sooner than at least one year's time.

  2. Compare and contrast the approach of the US and UK financial regulatory bodies and ...

    IASs to reduce the gap between IASs and US GAAP in order to gain that acceptance from SEC. As SEC Chairman Arthur Levitt (1996) said that "There's no doubt in my mind that [the IASC standards'] acceptability to U.S. investors will depend on how well those standards measure up to our own".

  1. Costs, Profits and Break-even Analysis.

    products with a more individual slant are more likely to be produced using a large proportion of labour. Costs The firm incurs a variety of costs when it produces and we split these in various ways. One way is to split them into fixed costs and variable costs: * Fixed

  2. The Purpose of Keeping Accurate Accounts

    fixed period of time, the company would not invest in something which had to be paid off in a number of years or moths if they didn't believe the company would still be running at this time. This concept is the underlying assumption that any accountant makes when he prepares a set of accounts.

  1. The concept of financial statement

    The Consistency Concept: It is the principle that there is uniformity of accounting treatment of like items, within each accounting period and from one accounting period to the next. For e.g. in the case of depreciation of fixed assets, there is more than one accepted accounting treatment.

  2. Enron Case Analysis

    So when a deal would go sour the managers would still get their bonuses. Also, the amount of the bonuses was a percentage of the estimated revenues earned from the deals, not the actual amounts made. [5] This led to managers claiming a project will make more than it actually would produce.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work