Income & Asset Value Measurement in Financial Accounting
1. INCOME & ASSET VALUE
MEASUREMENT:
AN ECONOMIST’S
APPROACH
L E C T U R E 0 1
B Y R I R I A R I YA N T Y, M M .
2. THE ACCOUNTANT’S VIEW OF INCOME,
CAPITAL, AND VALUE
Y0-1 = NA1 – NA0 + D0-1
Y0-1 = income for the period of time t0 to t1
NA1 = net assets of the entity at point of time t1
NA0 = net assets of the entity at point of time t0
D0-1 = dividend or distribution during period t0-1
Y = income of financial year
NA1 = net assets as shown in the statement of financial position at end of financial year
NA0 = net assets as shown in the statement of financial position at beginning of financial year
D0-1 = dividends paid and proposed for the financial year
ASSUMPTION
CAPITAL = NET ASSETS
RiriAriyanty,MM.|FinancialAccounting–Income&AssetValueMeasurement
3. STUDY CASE
• Dividend D0-1 for the financial year t0-1 was £450
• Net Assets NA0 at the beginning of the financial year were £6.000
• Net Assets NA1 at the end of the financial year were £6.750
Calculate income of financial year!
STUDY CASE USING FINANCIAL REPORTS
RiriAriyanty,MM.|FinancialAccounting–Income&AssetValueMeasurement
4. THE ECONOMIST’S VIEW OF INCOME,
CAPITAL, AND VALUE
Y1 = C + (K1 – K0 )
Y2 = C + (K2 – K1 )
YN = C + (KN – KN-1)
Y = income of financial year
K0 = the economic value of the business year
C = Consumption
ASSUMPTION
THE EXPECTED RATE ON CAPITAL EMPLOYED IS NEEDED
TO CALCULATE DISCOUNTED CASH FLOW
RiriAriyanty,MM.|FinancialAccounting–Income&AssetValueMeasurement