Accounting posits within several inconsistent paradigms.

| June 13, 2019

Accounting posits within several inconsistent paradigms. As a social science, there is perhaps no single truth to ascribe it. As a science, it has no underlying theoretical reality other than that which it can construct itself. Its postulates and principles are premised upon unverifiable qualitative characteristics. Its measurement is caught between the past and future; with real and fictional values, holding gains and losses intermingled in an additivity far bereft of common sense. 

Whilst the conceptual framework presents as a coherent structure embedded of assumptions, principles, qualitative characteristics and elements, these for the most part, comprise of divergent ideas woven together. The recognition, measurement and disclosure concepts do not posit in a single unifying approach but rather fall under the ambit of almost anything goes.

In 2015, Jones suggested that “across many fields of accounting there appears to be wide diversity on the core assumptions and methodological foundations of the accounting discipline.” Seventy-six years earlier in concluding ‘Truth in Accounting’ MacNeal provided two alternatives that the accounting profession could take. It is to the latter that will conclude this thesis. 

On the other hand, accountants may refuse to revise present accounting principles and methods. Instead, they may choose slowly to redefine the purpose of accounting itself, as the pressure of criticism makes this necessary. They may alter little by little the traditional concept that accounting should exhibit current facts, and may meet each advance in criticism with a new and more restricted definition of the accounting function. In this manner they may allow accounting gradually to be forced further and further into the category of nonessential endeavour, until it has largely forfeited the public confidence now placed in it.  … The second alternative may at first seem very easy, but it points to a future wherein accounting will be increasingly recognized as a static, dogmatic calling which has missed its opportunity to be of great public service.

Critically evaluate and discuss

Question 2. 6 Marks

On the 1st July 2018 Blecker Industries issued six year bonds with a total face value of $132,000 with a coupon interest rate of 5.5 per cent payable annually in arrears. At the date of issue the market’s required interest rate for Blecker’s bonds was 6.687 per cent. 

Show how Blecker Industries would subsequently measure the bonds at the 30th June 2019 if the bonds are classified as financial assets measured at amortised cost. 

Question 3. – 12 Marks

a)    What is a financial instrument?                         
b)    What is a financial asset?                         
c)    What is a financial liability?                         
d)    What is a derivative?                             
e)    How are financial assets classified and measured?         
f)    On 3 March 20X3, CBA entered into a fixed-price forward contract to purchase 3 tons of aluminum in 6 months. According to terms of the contract, CBA can either take physical delivery at the end of 6 months, or to pay or receive a net settlement in cash based on the change in market price of aluminum. Is this a financial instrument? 

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