Summary Normative Accounting Theory by Md. Humayun Kadir
Mohd Asrool Hasbullah B Shuib
1051109833
Lecture: Miss Mariati bt NorHashim
Summary Normative Accounting Theory by Md. Humayun Kadir*
This summary reviews Normative Accounting Theory by Md. Humayun Kadir* thats show five important works on normative accounting theory – MacNeal (1939), Paton and Littleton (1940), Litteton (1953), Chambers(1966), and Ijiri(1975) – with emphasis on recognition and measurement issues in accounting. It shows that there is a lack of agreement among these theorists on basic assumptions and hypothesized information needs of the users. Even where there is agreement on an assumption, different implications have been drawn therefrom by the concerned theorist. These differences lead to diffrent recognition and measurement proposals.
MacNeal(1939):
The concept its using is a revolutionary. His work contains a vehement attack against the present accounting practice. He thinks that the function of accounting is to report economic truth. But financial statements, he argues, do not present truth.They are misleading to the investors and creditors. In particular, he says that the historical cost principle and the conservatism convention prevent financial statements from presenting true financial position and the operating results of the firm.
MacNeal evaluates three justifications offered in favor of the cost principles. 1. The cost represents the value of a fixed asset to a going concern, called ‘the going value’ theory. 2. Second, it is impractical and expensive to revalue assets every year. 3. And even if revaluations of fixed assets were done every year that would not provide significant information to the users.
He employs a deductive model. MacNeal claims that managers, creditors and stockholders want to know the present net worth of the entity. Creditors need this information because this helps them assess the probability of being repaid. Stockholders need this information because this helps them compare the
1051109833
Lecture: Miss Mariati bt NorHashim
Summary Normative Accounting Theory by Md. Humayun Kadir*
This summary reviews Normative Accounting Theory by Md. Humayun Kadir* thats show five important works on normative accounting theory – MacNeal (1939), Paton and Littleton (1940), Litteton (1953), Chambers(1966), and Ijiri(1975) – with emphasis on recognition and measurement issues in accounting. It shows that there is a lack of agreement among these theorists on basic assumptions and hypothesized information needs of the users. Even where there is agreement on an assumption, different implications have been drawn therefrom by the concerned theorist. These differences lead to diffrent recognition and measurement proposals.
MacNeal(1939):
The concept its using is a revolutionary. His work contains a vehement attack against the present accounting practice. He thinks that the function of accounting is to report economic truth. But financial statements, he argues, do not present truth.They are misleading to the investors and creditors. In particular, he says that the historical cost principle and the conservatism convention prevent financial statements from presenting true financial position and the operating results of the firm.
MacNeal evaluates three justifications offered in favor of the cost principles. 1. The cost represents the value of a fixed asset to a going concern, called ‘the going value’ theory. 2. Second, it is impractical and expensive to revalue assets every year. 3. And even if revaluations of fixed assets were done every year that would not provide significant information to the users.
He employs a deductive model. MacNeal claims that managers, creditors and stockholders want to know the present net worth of the entity. Creditors need this information because this helps them assess the probability of being repaid. Stockholders need this information because this helps them compare the