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1、Chapter2:ApplicationofAccountingTheorySolutionsManualtoaccompanyUnderstandingAustralianAccountingStandardsJaniceLoftus,KenLeo,RuthPicker,VictoriaWise,KerryClarkByJaniceLoftusJohnWiley&SonsAustralia,Ltd20132.9©JohnWileyandSonsAustraliaLtd2013Chapter2:ApplicationofAccountingTheoryComprehen
2、sionQuestions1.Describethefourcomponentsofanaccountingpolicy.Illustrateyouranswerwithexamples.Accountingpoliciesthefollowinginvolvefourcomponents:Definition–whichelement(s)offinancialstatementsisrecognised,e.g.recognisingexpenditureonbuildingimprovementsasanasset;Recognition–whentheitemi
3、stoberecognised,e.g.,recognisingcostofgoodssoldasanexpensewhengoodsaredeliveredtothecustomer;Measurement:howshoulditbemeasured,e.g.,whethertomeasureanassetatcostorfairvalue,howtomeasuredepreciation;andDisclosure:howinformationshouldbepresentedanddisclosed,suchaswhethertodisclosetheuseful
4、lifeofanasset.2.Differentiatenormativeaccountingtheoryfrompositiveaccountingtheory.ProvideanexampleofeachAnormativetheoryprescribeswhatshouldbedonebasedonaspecificgoalorobjective.Theoutcomeofanormativetheoryisderivedfromlogicaldevelopmentbaseduponastatedobjective;e.g.,theConceptualFramew
5、orkprescribesprinciples,suchasrecognitioncriteriaforelementsoffinancialstatements,baseduponanexplicitobjectiveoffinancialreporting.Incontrast,theroleofapositivetheoryistodescribe,explainsorpredict.Forexample,agencytheoryisapositivetheorybecauseitisusedtoexplainwhymanagerspreferaccounting
6、policiesthatincreaseprofitincertainsituations,suchaswhenthereisabonusplanlinkedtoaccountingprofit.3.Whatisthedifferencebetweenthedeductiveaninductiveprocessesofdevelopingatheory?Developingatheoryusinginductivereasoningcommenceswithobservingdefinableactivitiesandactions,whichformthebasisf
7、orinferringtheprinciplesthatconformtotheobservations.Thetheoristwouldthenattempttoinferhigher-levelassumptionsandobjectives.Developingatheoryusingdeductivereasoningcommenceswithsettingobjectives,whichmaybebasedonassumptions.Forexample,anobjectiveofprovidinginformationthat