5. Normative theories of accounting - the case of accounting for changing prices Flashcards
What is Present value?
The value of an item to be received or paid for in the future expressed in terms of its value today.
What is Mark-to-model?
An approach where the value of assets is determined by reference to valuation models.
What is Mark-to-market?
An approach where the value of assets is determined on the basis of observable market values.
What is Capacity to adapt?
A measure, promoted by Chambers, tied to the cash that could be obtained if an entity sold its assets. The greater the current cash equivalents of an organisation’s assets, the greater the capacity to adapt to changing circumstances.
What is Current cash equivalent?
Represented by the amount of cash that would be expected to be generated by selling an asset.
What is Physical capital maintenance approach?
Under this perspective, a profit is earned only if the organisation’s productive or operating capacity at the end of the reporting period exceeds the capacity at the beginning of the period, excluding any contributions from, or distributions to, owners.
What is Financial capital maintenance perspective?
Under this perspective of capital maintenance, a profit is earned if the amount of net assets at the end of the reporting period exceeds the amount at the beginning of the year, excluding any contributions from, or distributions to, owners.
What is Mixed measurement model of accounting?
An approach to accounting wherein a variety of measurement approaches are used to measure assets and liabilities.
What is Holding gains?
Increases in the value of assets or reductions in the value of liabilities that arise as a result of holding assets or liabilities over time without transforming or modifying them.
What is Non-monetary assets?
Can be defined as those assets whose monetary equivalents will change over time as a result of inflation, and would include such things as plant and equipment and inventory.
What is Monetary assets?
Monetary assets are assets that remain fixed in terms of their monetary value, for example cash and claims to a specified amount of cash (such as accounts receivable and investments that are redeemable for a set amount of cash). These assets will not change their monetary value as a result of inflation.
What is General price index?
A price index calculated for a generally consumed bundle of goods. an example would be a consumer price index.
What is Price index?
A weighted average of the current prices of goods and services relative to a weighted average of prices in a prior period, often referred to as a ‘base period’.
What is Stewardship?
Refers to the process whereby a manager demonstrates how he or she has used the resources that have been entrusted to them by others who generally are not directly involved in the management of the entity.
What is Active market?
A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
