Question 3 (a) Define the efficient contract view of the role of accounting in contracts. (Maximum...

 

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Question 3 (a) Define the efficient contract view of the role of accounting in contracts. (Maximum words: 100) (b) Briefly explain if the following examples demonstrate the efficient contract view. (1) Accounting numbers are used to design bonus plan contracts rather than share prices; (Maximum words: 150) (ii) As part of the debt contracts, the leverage ratio (i.e., debt to total tangible assets) excludes intangible assets from the denominator; (Maximum words: 150) (ii) A manufacturing company recognises sales revenue at the time of production, even though the company receives no guaranteed sales contract. (Maximum words: 150) (Total for Question 3: 9 marks) Question 3 (a) Define the efficient contract view of the role of accounting in contracts. (Maximum words: 100) (b) Briefly explain if the following examples demonstrate the efficient contract view. (1) Accounting numbers are used to design bonus plan contracts rather than share prices; (Maximum words: 150) (ii) As part of the debt contracts, the leverage ratio (i.e., debt to total tangible assets) excludes intangible assets from the denominator; (Maximum words: 150) (ii) A manufacturing company recognises sales revenue at the time of production, even though the company receives no guaranteed sales contract. (Maximum words: 150) (Total for Question 3: 9 marks)

Answer rating: 100% (QA)

A Efficient contracting theory studies the role of financial accounting information in moderating information asymmetry between contracting parties thereby contributing to efficient contracting and st... View the full answer