Question

Question one:

Briefly explain the following statements:

A) Accounting reporting may improve the allocation of resources in the economy.

B) Natural and physical theories are built on the scientific approach, but we can't depend on it when we set accounting theory.

C) Earning quality is the degree of correlation accounting income and economic income but earning management is the influence on reported income.

D) There is overload problem in accounting standards.

E) When accounting theory set, we should distinction between theorizing and theory construction.

F) Accounting theory solved the expectation gap problems.

G) Expenses and losses are non-revenue- producing cost expirations.

H) There are many measurement techniques used in valuing assets and liabilities which lead to confuse the financial statement stakeholders.

Answer 1

A) This statement is true that Accounting reporting may improve the allocation of resources in the
economy. By analysing the fact on the basis on what accounting information obtained. So improved
accounting reporting give the true picture of financial information including expenses of various
resources in revenue and capital nature, which contribute to take key decision for proper allocation
of resources.
B) This statement is seems false. Natural and physical theries are based on practial experience and scientifically
approach even the same can be use while defining and explaining accounting theory. Accounting theories will
get more justified with natural and phisical theories. So both are interlinked.
C) This statement seems correct. Accounting income is the income which are realised or to be realised because
it based on accrual system. While economic income is actualy earned income. But management to earn is the
efficiency and quality which lead to revenue, control the cost and ultimately influence the earning even not in
accounting but economic also.
D) This is the correct that overload problem in accounting standard. Lot of amendments, IFRS application,
Fair value concept, change in Auditing standard and many more which are directly or indirectly related to
accounting. These changes are overloaded and mostly effet to small business, which covered under the
applicability of accounting standard.
F) Accounting theory including accounting principal & concept i.e. Going concern assumption, Matching concept,
Conservatism, Revenue matching concept, Prudence, Materiality, etc are the basis of accounting. Any conflict in
accounting can be resolved based on these accounting theories. So this is correct statement that Accounting theory
solved the expectation gap problem. I am understanding here to expectation gap as confusion.
G) Expenses and loss are revenue in nature and these expenses and losses should be debited to income statement.
So this is false statement that expenses and losses are non-revenue producing cost expiration.
H) This is false statement. Normaly assets and liability are recorded based on historial cost or fair value with detailed
and proper disclosure of valuation. These accounting information and policies never confused the stakehlder's because
enough transparancy and standard accounting practice followed.