Contemporary Issues in Accounting Theory and Insolvency in Construction Industry

Assessment 3
Contemporary issues in
Accounting theory

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Reasons for insolvency and relevant accounting theories..................................................3
2. Major stakeholders concerned............................................................................................4
3. Suggestions/reasons why the lenders would not have been concerned about potential
insolvency issues of their borrowers......................................................................................5
4. Personal Reflection.............................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
In case of bankruptcy, the law mandates an entity to comply with the collection
requirements of its debts, and therefore distribution amidst the shareholders. Furthermore, the
provisions and regulations led down by the law, is meant to decipher the issues faced due to
business failure, which could be a result of the entity's actual or imminent downfall of the bankrupt
entity (Akinradewo and Onyia, 2020). The objective of the report is to explore applicable theories
guiding the technique of distribution in insolvency among the group of dealers. The report analyses
the upward thrust in insolvency problems in the construction sector, together with the relevant
theories and the factors contributing to a rise in insolvencies. The following report provide
solutions to the four case studies given in the assessment.
MAIN BODY
1. Reasons for insolvency and relevant accounting theories
One of the reasons that lead to increase in insolvencies was increasing costs and shortage of
workers in the construction industry. There had been a range of factors that more extensively
contributed to the civil industry accounting with increment of 20 percent related to the bankruptcy
for recent years in Australia. The reliability on fixed contracts was one of the crucial factors, which
fixes the prices before a build starts. Those contracts give homebuyers or builders peace of mind,
but can leave developers not able to turn a income. The problem is construction takes a long time
and over that time, prices go up, materials become unavailable, a pandemic develops. So, if the
owner has signed to deliver the particular house on a fixed date for the fixed sum of money, the
builders will often have to go bankrupt because they can't deliver the project. Substantial payments
of special dividends to related parties, a large investment in cryptocurrency and a number of
uncommercial and unreasonable transactions, all contributed to the collapse of Privium and its
related companies as reported by the liquidators of Privium.
The acknowledgement of issues faced during insolvency, henceforth develops the basis for
several theories thereon.
Maximisation of Social Welfare Theory: When economically withered corporations are dissolved,
however firms with similar situation are continued, is the period, when social welfare is maximised.
(Chuah and Vaccari, 2019). This could be due to creditors being more inclined towards the