Page
  1. 1
    1
  2. 2
    2
  3. 3
    3
  4. 4
    4
  5. 5
    5
  6. 6
    6
  7. 7
    7
  8. 8
    8

The Nature of Income measurements

Extracts from this essay...

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.

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.

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

The above preview is unformatted text

Found what you're looking for?

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

Not the one? Search for your essay title...
  • Over 180,000 student essays
  • Every subject and level covered
  • Thousands of essays marked by teachers

Related GCSE Accounting & Finance

  1. MBA Accounting For Managers - Discuss the extent to which the legal and professional ...

    of management of the relationship between the employees and the entity of the organisation. His findings, that are consistent with the power and politics perspective23, are that managers experienced more conflicts as they developed and adjusted their budgets, gives rise to his hypothesis that managers had to negotiate the distribution

  2. Unit 5 Introduction to Accounting

    While intangible assets don't have the obvious physical value of a factory or equipment, they can prove very valuable for a firm and can be critical to its long-term success or failure. For example, companies such as Coca-Cola wouldn't be nearly as successful were it not for the high value obtained through its brand-name recognition.

  1. Costs, Profits and Break-even Analysis.

    It is a little inflexible as a system as well unless used very carefully. 3. Economic order quantity For any company there is an optimum level of stocks. The precise level of this will vary in different firms and industries.

  2. Management Accounting Report.

    Method (Budgetary control) The methods used are: * Calculations * Reports * Formulae Finding (Budgetary control) The sales budget below will show the total sales at the current price and the total sales at the increased price. MONTHLY SALES BUDGET Current price £1,200 Increased price £1,320 Month Unit £ Unit

  1. Auditing is becoming an increasingly expensive part of the management of health care. ...

    the need for the auditors to have more skills to understand the nature of the business, or additional staff, with specialist skills. When appointing an external auditor the skills of the specific auditors must be considered. There is increasing scope to employ people from other professional backgrounds to carry out

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

    Another solution is adoption of US GAAP within EU member states. However this solution has been rejected by EU commission. The reason is because firstly US GAAP is too complex. It lacks the flexibility when dealing with the different situations in each member state.

  1. This report has been produced as evidence for Unit 9 - 'Financial Services' - ...

    150 150 150 150 150 150 Total expenses 1360.62 1360.62 1360.62 1360.62 1360.62 1360.62 Closing Balance 8,795.98 9,591.96 10,387.94 11,183.92 11,979.90 12,775.88 Opening Balance 7 8 9 10 11 12 Income 12,775.88 13,571.86 14,367.84 15,163.82 15,959.80 16,755.78 Other Income 2,156.60 2,156.60 2,156.60 2,156.60 2,156.60 2,156.60 Total Income Expenditure 14,932.5 15,728.5

  2. 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.

  • Over 180,000 essays
    written by students
  • Annotated by
    experienced teachers
  • Ideas and feedback to write
    your own great essays

Marked by a teacher

This essay has been marked by one of our great teachers. You can read the full teachers notes when you download the essay.

Peer reviewed

This essay has been reviewed by one of our specialist student essay reviewing squad. Read the full review on the essay page.

Peer reviewed

This essay has been reviewed by one of our specialist student essay reviewing squad. Read the full review under the essay preview on this page.