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Explain any two criticisms of the accountant’s measure of profit.

 

The profit figure is an objective measure with some subjective estimates. It has been argued that it does not reflect current value. For example in a period of high inflation, Casi Plc decided to use replacement cost accounting.  Closing inventory was purchased for £35 per unit. The general price increases during the period meant the purchase price had increased by 30% by the end of the period.

The Finance manager of Casi Plc is interested in how Positive accounting, Normative accounting, Public interest and Capture theories impact on the accounting theory.

Caspi Plc has implemented IAS 36 impairment of assets. All the assets were reviewed for impairment where appropriate and the impairment loss has been included within the financial statements.

Requirement:

  1. Explain any two criticisms of the accountant’s measure of profit.(maximum word count 60)

(4 Marks)

  1. What is the value per unit of closing inventory of Casi Plc at the end of the period?

(2 Marks)

iii)        Explain the following in relation to accounting theory.

  • Positive accounting theories
  • Normative accounting theories
  • Public interest theory
  • Capture theory

(maximum word count 160)

(8 Marks)

  1. iv) Describe what is meant by ‘impairment’ and briefly explain the procedures that must be followed when performing an impairment review.(maximum word count 220)

(11 Marks)

Solution:

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