Lightweight Graphical Models for Selectivity Estimation without Independence Assumptions
Accounting Models and its assumptions
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Transcript of Accounting Models and its assumptions
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7/28/2019 Accounting Models and its assumptions
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WHATIS ACCOUNTING?
The systematic recording,
reporting, and analysis of
financial transactions of a
business
Businesses are crucial to
accounting and mustprepare financial
statements
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WHATARE ACCOUNTING
CONCEPTS?Ground rules of accounting
that should be followed in
preparation of all accounts
and financial statements
These rules must be followed
by accountants who work forany business or are
entrepreneurs in their own
firm
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WHATIS HISTORICAL COST
ACCOUNTING?
The financial accounting based on the
original cost of an item ignoring
inflationary increases.
Records an asset based on its
actual value without any
adjustments for inflation
On a balance sheet the
values of assets are the
Purchase cost of the asset
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WHATIS CURRENT COST
ACCOUNTING?Also known as market value
accounting
A form of accounting in
which the approach to capital
maintenance is based on
maintaining the operating
capability of a business
Mutual funds usually pricetheir shares daily based on
the last trade of the dayAssets measured according to
replacement cost
The adjustments called
market-to-market
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ADVANTAGESOFCURRENT
COSTACCOUNTINGMore relevant
Provides up-to-date information with
financial market
Takes inflationary adjustments into account
Critics have argued market value (current
cost) reveals economic realities that arehidden by historical cost accounting.
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CONTINUED...
Investors and creditors also prefer the market value
accounting
The information about the market value at the
reporting date, the changes in that value and thecomponents of that change- all provide the investors
with valuable information for his decision making.
In financial statements , easier to view anddetermine whether the asset or liability is at risk or
not
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DISADVANTAGESOFCURRENT
COSTACCOUNTING
Unreliable
if the information is unreliable, it should not be
used to make financial decisions.
Volatile
When market price of an asset or liability is not
available, the value is estimated (inappropriate)
Cannot provide the same relevant and reliability in
case of measuring the appreciation.
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MEASUREMENTOFTHEELEMENTSOF
FINANCIALSTATEMENTS
Measurement is the process of determining the
monetary amounts at which the elements of thefinancial statements are to be recognized andcarried in the balance sheet and incomestatement.
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MEASUREMENTOFTHEELEMENTSOF
FINANCIALSTATEMENTSThis involves the selection of the particular
basis of measurement.
Historical cost
Current cost
Realizable (settlement) value.
Present value.
Examples :-
Inventories are usually carried at the lower ofcost and net realizable value.
Marketable securities may be carried at marketvalue.
Pension liabilities are carried at their present
value
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CONCEPTS OF CAPITAL AND
CAPITAL MAINTENANCE A financial concept of capital is adopted by
most entities in preparing their financialstatements.
Under a financial concept of capital, capital issynonymous with the net assets or equity of theentity.
Financial capital maintenance can be measuredin either nominal monetary units or units ofconstant purchasing power.
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CONCEPTS OF CAPITAL AND
CAPITAL MAINTENANCE Under a physical concept of capital, such as
operating capability, capital is regarded as theproductive capacity of the entity based on, forexample, units of output per day.
The selection of the appropriate concept ofcapital by an entity should be based on theneeds of the users of its financial statements
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FINANCIALCAPITALMAINTENANCE
Financial capital maintenance
Under this concept a profit is earned only if the
financial amount of the net assets at the end ofthe period exceeds the financial amount of netassets at the beginning of the period, afterexcluding any distributions to, andcontributions from, owners during the period.
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PHYSICALCAPITALMAINTENANCE
Under this concept a profit is earned only if thephysical productive capacity of the entity at theend of the period exceeds the physicalproductive capacity at the beginning of theperiod, after excluding any distributions to, andcontributions from, owners during the period.
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CONCEPTS OF CAPITAL AND
CAPITAL MAINTENANCEThe concept of capital maintenance is
concerned with how an entity defines the capitalthat it seeks to maintain.
profit is the residual amount that remains afterexpenses (including capital maintenanceadjustments, where appropriate) have beendeducted from income. If expenses exceed
income the residual amount is a loss.
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THEDIFFERENCEBETWEENTHETWO
CONCEPTS
The principal difference between the twoconcepts of capital maintenance is thetreatment of the effects of changes in the pricesof assets and liabilities of the entity.
In general terms, an entity has maintained itscapital if it has as much capital at the end of theperiod as it had at the beginning of the period.
Any amount over and above that required tomaintain the capital at the beginning of theperiod is profit.