Accounting Theory Solution Chapter 2

2625 Words May 7th, 2012 11 Pages
Questions
1.‘A theory that is purely syntactic is sterile.’ Comment. How can this statement relateto accounting?
A syntactic theory is one that is capable of testing on the basis that it is valid in terms of itslogical consistency. Thus the calculation of accounting profit and determination of assetvaluation can be valid in relation to their conformity with rules prescribing the measurementof accounting profit and asset valuations. This can be described as sterile as it does notnecessarily relate to the real world. Historical cost accounting has been represented as being purely a syntactic theory, with the semantic inputs to the system being the transactions andexchanges recorded in the accounting system, which are then aggregated and
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4.Give two examples of accounting ‘doublethink’. How do traditional accountantscounter this criticism?
•The practice of summing together assets using different valuation methods and believing that the sum (total assets) is an exact measure of asset ‘value’
•The practice of using conservative accounting techniques and different allocation techniques to derive net income, which is then compared acrossdifferent industries
•Accountants counter by arguing that the purpose of accounting is to match (allocate)historical costs, and is not a measurement system. Also, accountants argue that diversetechniques are required to account for different business situations.
5.(a)What is normative accounting? Give two examples of the major issues debated inthis area.
(b)Do you think that the effects of inflation on financial statements are important?Why or why not?
(a)Normative accounting research is more concerned with policy recommendations and withwhat should be done in contrast to explaining why current practice is carried out in themanner that it is. Normative theorists usually attempt to derive either the ‘true income’ or adopt the‘decision-usefulness’ approach whereby accounting reports are an input into users’decisions (for example, to buy or sell shares, and management decisions on the financialwealth of firms).The major issues are the impact of the changing…