Question: Question 3 - Positive Theory If a reporting entity has a choice of either expensing or capitalising an item of expenditure, and if the entity

Question 3 - Positive Theory

  1. If a reporting entity has a choice of either expensing or capitalising an item of expenditure, and if the entity is subject to a high degree of political scrutiny, then what choice would be predicted by the political cost hypothesis of Positive Accounting Theory (PAT)? Contrast this with what would be expected under the bonus plan hypothesis. Illustrate your response with examples. (10 marks)
  2. With reference to the key hypotheses of PAT, explain how a decision made by the International Accounting Standards Board and incorporated into Australian accounting standards could influence the business operating strategies employed by a CEO managing a company in Australia. (10 marks

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