• 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. Management Accounting Report.

    Below I am going to show the Cash Flow Forecast at the current price, which will be followed by the Cash Flow Forecast at the increased price. The Cash Flow Forecast shows at the current price shows that the closing balance at the end of the year is £50,000 but

  2. 'Historic cost accounting is the worst possible accounting convention, until one considers the alternatives.'

    Despite of this, there were also many who supported historical cost accounting. Following the falling inflation since mid-1980, accounting standard-setters throughout the world have switched away from issues associated with accounting in times of rising prices. This phenomenon can be explained by considering the advantages of historical cost accounting and the limitations of its alternatives.

  1. Unit 5 Introduction to Accounting

    Fixed assets are sometimes collectively referred to as plant. Buildings, real estate, equipment and furniture are good examples of fixed assets. Generally, intangible long-term assets such as trademarks and patents are not categorized as fixed assets but are more specifically referred to as fixed intangible assets.

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

    70 70 70 70 Shopping 1,200 1,200 1,200 1,200 1,200 1,200 Phone 50 50 50 50 50 50 Water/Gas/Electricity 150 150 150 150 150 150 Total expenses 2166.70 2166.70 2166.70 2166.70 2166.70 2166.70 Closing Balance 7,220.10 8,394.40 9,568.70 10,743.00 11,917.30 13,091.60 Fixed rate account Company Account Notice or Term Deposit

  1. Costs, Profits and Break-even Analysis.

    The standard product life cycle tends to have five or six phases: 1. Development 2. Introduction 3. Growth 4. Maturity 5. Decline It can also be shown graphically. The graph often has two lines - one to show the level of profit, and one to show the level of sales: Firms will often try to use extension strategies.

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

    To overcome this risk there are a number of steps the Audit Commission take to avoid a potential loss of objectivity of the auditors, including rotation of individual audit staff and companies. At this time approximately "70 per cent of audits are carried out by District Audit, the Commission's own arm's length audit agency."

  1. Enron Case Analysis

    Skilling was not interested in day-to-day operations, and only wanted to know how much the company was earning. Skilling delegated most of his authority to the Chief Accounting Officer Rick Causey. [6] Causey reported to Skilling and simply told him how the different businesses were doing.

  2. Performance measurement and rewards within organisations.

    Incomplete Knowledge of the organization The way accounting standards derive profits may not reflect the true profitability of the firm, accounting profits are more conservative and based on historical value rather than "cash flow". There are a lot of potential values missing out such as intangible assets or prudent write-offs (e.g.

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