Presents a reply to criticisms on an article about the need for priori research in accounting. Analogy between a move from a pure priorism to empiricism; Evidence that accounting literature is replete with evaluations of the alternative systems.
ABSTRACT: Methodologically this paper represents a synthesis and a critique of various probabilistic approaches to "return on investment" (ROI) and "residual income" (RI). Starting with assumed normality of basic underlying variables, the paper proceeds to consider more complex circumstances revolving simulation and alternatives thereto. RI is judged more versatile than ROI. Assuming normality of basic underlying variables, RI always can be assumed normal, whereas ROI cannot. This facilitates determining probability intervals through analytically derived means and variances. In more complex cases, frequency distributions available with simulation contain data for constructing probability intervals. Where simulation is not used, it is concluded that the real world applicability of Kolmogorov-Smirnov and Cramer-von Mises goodness-of-fit tests, and especially Tchebycheff-type inequalities, can be limited. Thus, high, medium and low estimates of ROI and RI are considered viable alternatives to estimating specific probability intervals.
This article presents the text of a report by the Subcommittee on Depreciation Accounting regarding the proposed accounting standard by the International Accounting Standards Committee of the American Accounting Association in the U.S. as of October 2, 1977. The proposed standard ought to provide a conceptual foundation for depreciation accounting. The point should be made rather forcefully that for income determination purposes the depreciation charge for a period ideally measures the cost or other basic value of the asset services consumed in that period. The statement, in paragraphs 10 and 21, and perhaps elsewhere, should tie the process of depreciation to the consumption of the service potential of the asset, at least conceptually and for income determination purposes. The statement could recognize the difficulties involved in specifying what is meant by services or service potential and the problems involved in measuring their consumption. A general guideline should be presented that in choosing a depreciation method, due care must be paid to the anticipated pattern of service consumption.
ABSTRACT: This paper presents a detailed example regarding whether to continue to generate service internally or to acquire the service externally. The example demonstrates that most of the basic data required for the correct decision on closing one service department can be obtained from the information normally presumed to be available when service department costs are allocated to producing departments by the algebraic (simultaneous equation) method. The example includes variable and nonvariable service department costs. Finally, the decision to close more than one service department is examined.