• 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. '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.

  2. Management Accounting Report.

    of money needed for labour, raw materials, subcontract cost and the variable overheads. PRODUCTION COST BUDGET EACH UNIT Hours Cost Total Hours Cost Total Labour 40 £ 7.00 £ 280.00 Raw materials £ 120.00 Sub Contract £ 50.00 Variable Overheads £ 50.00 Unit total £ 500.00 Sales volume at current

  1. Unit 5 Introduction to Accounting

    Cash sales are often best because the company receives the money for the sale immediately.

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

    30.00 30.00 30.00 30.00 30.00 30.00 Car insurance(Paul) 55.00 55.00 55.00 55.00 55.00 55.00 Pension 87.5 87.5 87.5 87.5 87.5 87.5 Dental insurance 30.00 30.00 30.00 30.00 30.00 30.00 Home content insurance 18.00 18.00 18.00 18.00 18.00 18.00 Car loan 240.00 240.00 240.00 240.00 240.00 240.00 Building insurance 25.00 25.00 25.00 25.00 25.00 25.00 Council Tax 70 70

  1. Enron Case Analysis

    Enron hastily invested in anything that would make them a quick buck without weighing the long term effects. When these investments began to loose money Enron shifted capital from other projects to them, and sold more shares to make them appear profitable.

  2. Costs, Profits and Break-even Analysis.

    The Marketing Mix The marketing mix is the balance of marketing techniques required for selling the product. It's components are often known as the four Ps: * Price - the price of the product - particularly the price compared to your competitors - is a vital part of marketing.

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

    Audit Commission (2002b). 7. Output from Audit Within financial audit there are a number of obligations that organisations, and individual officers are responsible for producing, assessing and thereby signing to confirm appropriate action. The Audit Commission (2002a) have identified four main areas for audit: * "The legality of financial transactions

  2. Performance measurement and rewards within organisations.

    Mangers are only concerned with achieving easy targets to earn more monetary incentives in the short run. Conflicts of interests Purely "objective" (financial) divisional performance measures can create internal conflicts that end up reducing firm's overall value, due to discouraging cooperation among divisions.

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