tailieunhanh - The solutions manual for advanced financial accounting_1

Tham khảo tài liệu 'the solutions manual for advanced financial accounting_1', tài chính - ngân hàng, kế toán - kiểm toán phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 60 Part 1 The framework of financial reporting Let us extend the illustration by supposing that the barrow boy has changed the style of his operation. He now owns his barrow and trades in household sundries of which he can maintain a stock. If we wish to continue to apply the same principle as before in calculating his profit we would need to measure his assets at the beginning and the end of each day. Thus we would need to place a value on his stock and his barrow at these two points of time as well as counting his cash. All this may appear to be very simple but it is by no means trivial for the above argument contains one important implication that profit represents an increase in wealth or well-offness and one vital consequence that in order to measure the increase in wealth it is necessary to attach values to the assets owned by the trader at the beginning and end of the period. Let us now consider the implied definition of profit in a little more detail. The argument is that a trader makes a profit for a period if either he is better off at the end of the period than he was at the beginning in that he owns assets with a greater monetary value or would have been better off had he not consumed the profits. This essentially simple view was elegantly expressed by the eminent economist Sir John Hicks who wrote that income - the term which economists use to describe the equivalent in personal terms of the profit of a business enterprise - could be defined as the maximum value which a man can consume during a week and still expect to be as well off at the end of the week as he was at the This definition cannot be applied exactly to a business enterprise since such an entity does not consume. The definition can however be modified to meet this point as was done by the Sandilands Committee 3 which defined a company s profit for a year by the following adaptation of Hicks s dictum A company s profit for the year is the maximum value which the company can .