(Updated T2_2018)3101AFE ACCOUNTING THEORY AND PRACTICESWORKSHOP 6Deegan Topic 7: Positive...

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(Updated T2_2018)3101AFE ACCOUNTING THEORY AND PRACTICESWORKSHOP 6Deegan Topic 7: Positive accounting theoryQUESTION 1:Explain the efficiency perspective and the opportunistic perspective of positive accounting theory. Why is one ex ante and the other ex post?QUESTION 2:If a company pays its senior managers under accounting-based bonus plans would the managers, or the shareholders (or both), prefer the use of conservative accounting methods? Explain the reasons for your answer.QUESTION 3:If a large company subject to a high degree of political scrutiny has a choice between expensing and capitalizing an item of expenditure, what does the political cost hypothesis of Positive Accounting Theory predict will be the prefeed choice? Explain your answer.QUESTION 4:Read Accounting Headline 7.8. (Battered Babcock to meet bankers) Babcock and Brown had negotiated an agreement with lenders that its market capitalization would not fall below an agreed amount of $7.50 per share. However, the share price dipped below this agreedamount, meaning that the lenders could demand repayment of the funds if they choose to invoke their right to do so.From a PAT theory perspective, why would Babcock have agreed to this market capitalization requirement rather than other types of covenants, such as a restriction on the organization’s total liabilities to total tangible assets? Further, why would the banks have negotiated to have this market capitalization agreement included within the debt agreement?QUESTION 5:Read Accounting Headline 7.11(New accounting standards could trigger debt covenants) and answer the following questions:(a)  Why could the new accounting standard trigger debt covenants, creating a technical default?(b) Do you think the likelihood this new accounting standard will be released would already be influencing lease companies?(c)  Do you think lenders would prefer that more leases be recognised and disclosed onoowers’ balance sheets, or be kept off balance sheet?

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QUESTION 1:
	Milne, (2002), explained that firms make certain social disclosures voluntarily, only because of Positive Accounting Theory. Watts & Zimmerman, 1986, stated that Positive Accounting Theory helps a firm to reduce its agency cost. Any accounting theory has three perspective, which are, opportunity, efficiency and informative perspective (Holthausen, 1990). Same way, Positive Accounting Theory has both the perspective, efficiency perspective and the opportunistic perspective.
	The efficiency perspective of Positive Accounting Theory explains that managers choose such accounting theory which gives a true and fair view of the firm’s performance. Such accounting practices are adopted which gives a true image of the firm. This perspective is ex ante since the results are drawn on the basis of forecasts and not actual results, since forecasts are made on the basis of firm’s performance.
	The opportunistic perspective of Positive Accounting Theory explains that managers adopt such accounting practices and policies which will benefit them, they think about their self interest and gain, where ultimately firms also gain.

( Updated T2_2018 ) 3101AFE ACCOUNTING THEORY AND PRACTICES WORKSHOP 6 Deegan Topic 7: Positive accounting theory QUESTION 1: Explain the efficiency perspective and the opportunistic perspective of...

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