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Accounting Theory

In: Other Topics

Submitted By mawa198
Words 1299
Pages 6
Contemporary issues in Accounting
Unit Code: ACCOO106

Assignment -1
Subject: Normative accounting theory
To: Mr Khalid Mahmood

Name: Muhammad Mehedi Alam
ID: 21562675

Word count: 1145(reference excluded)
Date of Submission-07/12/09
Normative accounting theories
CPPA- current/constant purchasing power accounting
CCA- current cost accounting
CoCoA- continuous contemporary accounting Current purchasing power accounting a form of accounting that measures profit after allowing for the maintenance of the purchasing power of the shareholders' capital. ‘There are various prescriptive theories of accounting that were advanced by various people on the basis that historical cost accounting has too many shortcomings, particularly in times of rising prices’ (Page 83 Chapter 4).
| Theory and Purpose of |CPPA |Maintain purchasing power |Adjustments to income |
|accounting | | | |
|Measure of non-monetary |HC (historical cost) |historical cost accounts adjusted for |Holding gain/loss on net monetary |
|assets’ value | |changes in the purchasing power of the |assets/liabilities only recognised in |
| | |dollar (not recognise in PNL) |PNL |

Historical cost accounting assumes that money holds a constant purchasing power (Page 84). As Elliot states: “An implicit and troublesome assumption in the historical cost model is that the monetary unit is fixed and constant over time. CPPA was developed based on a view that in time of rising prices, if an entity were to distribute unadjusted profits based on historical costs....

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