3. Review of Relevant Theories of Income Determination
In preparation of Income Statements, there are underlining theories that are material in the structuring and
determination of what is considered as Income. The theories of real income can be considered under thefollowing four perspectives:
3.1 Business Entity Assumptions (BEA): Husband (1954), contends that business can be separated from its
owners and the environment in which it operates is necessary in order to set a boundary to the accounts. Only the
transactions directly affecting the entity are recorded in financial statement. Omolehinwa (2003) also observed
that the separate legal personality is assumed as business has a right to acquire assets and incurs liabilities as
distinct from its owners. The business has right to sue and be sued like any other person. Both agreed that it can
sometimes be somewhat arbitrary, particularly for small and medium enterprises where the affairs of the owners
and the businesses are often inextricably interwoven. This process would however give rise to distortion in real
income determination, especially where information are not readily available about private expenses of the
owners as distinct from the firms. Early advice and proper accounting records will however eliminate the
pending danger of not separating private expenses from business expenses. However, what Husband (1954) and
Omolehinwa (2003) did not recognized was the inability of the court to imprison the entity as individual can be
sentenced and imprisoned, except those who acting in that capacity.
3.2 Going Concern Assumption (GCA) means that in drawing up financial statements; the entity will continue to
exist in its present form into the indefinite future (perpetuity) (Fremgen, 1968). It is further stresses by (Fremgen,
1986) that organization will continue to exist for life as far as the firm can meet its immediate and long term
financial obligations. GCA, however ensure that assets should also be valued based on their economic useful life,
cost, degree of usage and residual value for purpose of real income determination. The controversy to going
concern assumption is that a firm could be compelled to go into liquidation if it cannot meet its short term and
long term financial obligations as they fall due. Other reasons for a firm's liquidation may include:
i . On litigation by creditors or by an order of the court.
ii. Proclamation by the government
iii. When the firm operates outsides its memorandum and articles of associations. (ultra vires)
iv. When the activities of the firm are illegal, injurious to health and against the public policy
v. On mutual agreement by the owner and stake holders.
vi. On completion of a particular venture or contract and;
vii. By an act of God (disasters, death etc)
Omolehinwa (2004) added that in valuation of assets, firms may use different methods which may give different
values in the financial statement. These methods include first- in- first- out, weighted average, highest- in- firstout
and next -in- first- out. Depreciation also has different methods of valuing assets. These methods are straight
line method, reducing balance method, sum of the year's digit method, revaluation method, annuity method,
sinking fund method and production units or hourly method. The choice criterion among the various methods of
assets valuation could result to over or understated profit in the financial statements. The going concern
assumption can however be realistic to some extent if the firm will be able to meet its routine and long term
financial obligations as they fall due. Otherwise, organization may abort this assumption by going into
liquidation. The strength and weakness of a firm will possibly predict or signal to interested parties on pending
danger for immediate action by identifying the various strengths, weaknesses, opportunities, and threats (SWOT)
of a firm.
3.3 Stable Monetary Unit Assumption (SMUA): states that the value of the monetary unit used in drawing up
the financial statements is constant over time. The validity of this assumption is somewhat questionable (Fisher,
1980). Its existence is apparently based on the additive nature of accounting data. Within a set of accounts all
the numbers that are capable of addition and subtraction exist. It is clear that even among infant school
arithmetic, it is not possible to add or subtract unlike terms or items and get a meaningful result like two
elephants, five apples, and ten motor vans do not make a meaningful quantity of seventeen (Fisher 1980). The
assumption however is that money values of property, plant and machinery, stock, debtors and cash obtained at
different times are summed up in a balance sheet; which are identical, even though the transactions may have
taken place at different times. The stability assumption also overlooks the purchasing power of money which is
constantly changing due to inflation and other factors, (Buckmaster, and Brooks, 1974). T
3. ทบทวนทฤษฎีการกำหนดรายได้ที่เกี่ยวข้องในการจัดทำงบกำไรขาดทุน มีทฤษฎีการขีดเส้นใต้ที่วัสดุในการจัดโครงสร้าง และกำหนดว่าจะถือเป็นรายได้ ทฤษฎีรายได้จริงถือได้ว่าภายใต้ thefollowing สี่มุมมอง:3.1 ธุรกิจทิสมมติฐาน (บดินทร์): สามี (1954) contends ที่ ธุรกิจสามารถแยกออกจากตัวเจ้าของและสภาพแวดล้อมที่ดำเนินกิจการจำเป็นเพื่อกำหนดขอบเขตของการบัญชี เฉพาะธุรกรรมที่ส่งผลกระทบโดยตรงต่อเอนทิตีจะถูกบันทึกในงบการเงิน Omolehinwa (2003) นอกจากนี้ยัง พบบุคลิกภาพทางกฎหมายแยกต่างหากถือว่าเป็นธุรกิจมีสิทธิที่จะซื้อสินทรัพย์ และใช้หนี้สินเป็นแตกต่างจากของเจ้าของ ธุรกิจที่มีการฟ้องร้อง และถูก sued เช่นบุคคลอื่นขวา ทั้งสองตกลงกันว่า จะสามารถบางครั้งจะค่อนข้างกำหนด โดยเฉพาะอย่างยิ่งสำหรับวิสาหกิจขนาดกลาง และขนาดย่อมซึ่งกิจการเป็นเจ้าของและธุรกิจมักกรอง inextricably กระบวนการนี้จะอย่างไรก็ตามก่อให้เกิดการบิดเบือนจริงกำหนดรายได้ โดยเฉพาะอย่างยิ่งข้อมูลไม่พร้อมเกี่ยวกับค่าใช้จ่ายส่วนตัวของการเจ้าของบริษัท as distinct from คำแนะนำก่อนและบันทึกทางบัญชีที่เหมาะสมจะตัดออกอย่างไรก็ตามการอันตรายรอไม่แยกค่าใช้จ่ายส่วนตัวจากธุรกิจค่าใช้จ่าย อย่างไรก็ตาม ว่าสามี (1954) และOmolehinwa (2003) ได้รับรู้ไม่ได้ไร้ความสามารถศาลคุกเอนทิตีที่เป็นสามารถแต่ละอย่างsentenced and imprisoned, except those who acting in that capacity.3.2 Going Concern Assumption (GCA) means that in drawing up financial statements; the entity will continue toexist in its present form into the indefinite future (perpetuity) (Fremgen, 1968). It is further stresses by (Fremgen,1986) that organization will continue to exist for life as far as the firm can meet its immediate and long termfinancial obligations. GCA, however ensure that assets should also be valued based on their economic useful life,cost, degree of usage and residual value for purpose of real income determination. The controversy to goingconcern assumption is that a firm could be compelled to go into liquidation if it cannot meet its short term andlong term financial obligations as they fall due. Other reasons for a firm's liquidation may include:i . On litigation by creditors or by an order of the court.ii. Proclamation by the governmentiii. When the firm operates outsides its memorandum and articles of associations. (ultra vires)iv. When the activities of the firm are illegal, injurious to health and against the public policyv. On mutual agreement by the owner and stake holders.vi. On completion of a particular venture or contract and;vii. By an act of God (disasters, death etc)Omolehinwa (2004) added that in valuation of assets, firms may use different methods which may give differentvalues in the financial statement. These methods include first- in- first- out, weighted average, highest- in- firstoutand next -in- first- out. Depreciation also has different methods of valuing assets. These methods are straight
line method, reducing balance method, sum of the year's digit method, revaluation method, annuity method,
sinking fund method and production units or hourly method. The choice criterion among the various methods of
assets valuation could result to over or understated profit in the financial statements. The going concern
assumption can however be realistic to some extent if the firm will be able to meet its routine and long term
financial obligations as they fall due. Otherwise, organization may abort this assumption by going into
liquidation. The strength and weakness of a firm will possibly predict or signal to interested parties on pending
danger for immediate action by identifying the various strengths, weaknesses, opportunities, and threats (SWOT)
of a firm.
3.3 Stable Monetary Unit Assumption (SMUA): states that the value of the monetary unit used in drawing up
the financial statements is constant over time. The validity of this assumption is somewhat questionable (Fisher,
1980). Its existence is apparently based on the additive nature of accounting data. Within a set of accounts all
the numbers that are capable of addition and subtraction exist. It is clear that even among infant school
arithmetic, it is not possible to add or subtract unlike terms or items and get a meaningful result like two
elephants, five apples, and ten motor vans do not make a meaningful quantity of seventeen (Fisher 1980). The
assumption however is that money values of property, plant and machinery, stock, debtors and cash obtained at
different times are summed up in a balance sheet; which are identical, even though the transactions may have
taken place at different times. The stability assumption also overlooks the purchasing power of money which is
constantly changing due to inflation and other factors, (Buckmaster, and Brooks, 1974). T
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