Financial Accounting Theory Assignment

Added on - 21 Apr 2020

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Running head: FINANCIAL ACCOUTNING THEORYFINANCIAL ACCOUTNING THEORYName of the StudentName of the UniversityAuthor Note
1FINANCIAL ACCOUTNING THEORYTable of ContentsAnswer to Question 1.................................................................................................................2Answer to Question 2:................................................................................................................3Part a.......................................................................................................................................3Part b......................................................................................................................................3Part c.......................................................................................................................................4Case Study:.................................................................................................................................4Answer to Question 1.............................................................................................................4Answer to Question 2.............................................................................................................4Answer to Question 3.............................................................................................................5Answer to Question 4.............................................................................................................5Reference List:...........................................................................................................................6
2FINANCIAL ACCOUTNING THEORYAnswer to Question 1According to the Chamber`s theory, it is an essential role of accounting to provideinformation about the entity`s capacity to adapt. The concept of `capacity to adapt`, is atechnique or an accounting measure which is directly related to the liquid resources thatwould be received if an being or a business were to sell its assets. Costs incurred in sellingwould be subtracted from it (Deegan, 2013). In case all things are equal, the higher themarket value of the company`s assets, the higher is its capacity to adapt to the changingsituations. In simple terms, this means that the company would be able to utilize that moneyfor some other purpose. In cases, where the company has a highly specialized asset such as ablast furnace, which does not have an available market are considered to have a low capacityto adapt. In case of a blast furnace, the asset has little or no market value, hence it has aminimum contribution to the organization`s capacity to adapt.The chamber`s theory suggests that a firm should value its assets at their current cashequivalents which is the amount that is expected to be received by the firm in case the asset issold. With respect to the Contemporary accounting approach of asset valuation, the assetsthat cannot be sold separately, for example- goodwill would be deemed to have a zero valuefor the purpose of financial statement.The Chambers theory states that all assets should be determined on the same basiswhich is the resources(liquid) received in case they are sold, it is often argues that the valuesof all such assets should be added together (Setyorini & Ishak, 2012). This concept contrastswith the common theory, which states that assets belonging to different classes have adifferent way of valuation, although a total sum of all assets is stated. This problem is oftenreferred to as the `additivity problem`.
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