Question

1- what do we mean by ( the allocation problem in Financial accounting) ? 2- simply explain the difference between transaction approach and valuation approach? 3 - what do we mean by ideal economic income and wealth ? 4- what do we mean by income Ex ante and income Ex post and how are they used ?

Answer 1

1. Allocation Problem in Financial Reperting is related in the context of the joint cost problem, altough it has implications for the accounting problem as well. The problem of allocating costs to differnt periods of time. In this regard accounting methods are evaluated though the use of centainty models subject like depreciation, accounting for lease,deffered tax etc. even though the future is uncertain and these numbers are not actually konwn.

2. Difference: Transational Approach is the concept of deriving the financial results of a business by recording individual revenue, expenses and other purchase transactions and Valution Approach is the methodology used to determine the fair market value of a business.

3. Meaning of Economic Income: It is the way for companies to account for changes in the value of given asset in the market. It generally recognizes unrealised gians, in addtion to recognizing realised gains.

Meaning of Wealth: It measures the value of all assets of worth owned by person or company.

4. Incomoe ex ante refers to future income events such as potential returns of particular security or the returns company. It also means income earned before the event/transaction occured.

Uses: It is used by analysist in financial income/market prediction of various financials.

Income Ex post: It is calculated using the begining and ending assests values for a specified period, growth or decline in the value plus any earned income produced by the assets during the period.

Uses of this ex post data in investment price fluctuation, earning and other metrics to predict expected returns.