• 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.

    80 £ 40,000.00 July 90 £ 45,000.00 90 £ 45,000.00 August 80 £ 40,000.00 80 £ 40,000.00 September 90 £ 45,000.00 90 £ 45,000.00 October 120 £ 60,000.00 120 £ 60,000.00 November 150 £ 75,000.00 150 £ 75,000.00 December 130 £ 65,000.00 130 £ 65,000.00 Total 1300 £ 650,000.00 1190

  2. Unit 5 Introduction to Accounting

    Intangibles An asset that is not physical in nature. Corporate intellectual property items such as patents, trademarks, copyrights, business methodologies, goodwill and brand recognition are all common intangible assets in today's marketplace. An intangible asset can be classified as either indefinite or definite depending on the specifics of that asset.

  1. 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

  2. Enron Case Analysis

    Also, through the misguided accounting practices of recording future numbers instead of actual numbers their balance sheet was inflated greatly. The CFO, Jeffrey Skilling, should have never instituted the "mark to market" accounting system. Instead, they should have used real numbers like every honest company.

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

    Box 4 represent areas for monitoring, although immediate action is not required. The position needs to be monitored to ensure the risk remains, relatively low. The value of external audit is to ensure all areas are monitored and that the risk assessment is validated through a separate process.

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

    One key change is from European Commission (EC)'s Directive which requires all of EU member states' listed companies to adopt the International Accounting Standards (IASs) for their group accounts by 2005. This event has a significant influence on UK financial reporting system and it also reflects the tendency of EU accounting harmonisation.

  1. Costs, Profits and Break-even Analysis.

    for each one you sell, you're selling plenty more to make up for it. However, say that when the firm cut its price the same amount (10%), the demand for their product only went up by 5%. This would mean that the price elasticity of demand was only 1/2.

  2. The role of a conceptual framework

    Financial Reporting, Conceptual framework - Which way forward?, Vol.134, Iss. 1335; pg. 88). About 17 years later the IASC was reorganised into the IASB which is known has the International Accounting Standards Board in order "... to take over the responsibility for standards setting", (Scott, R.

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