Accounting for Income

Introduction Accounting income is often used as the basis for an indication of the result of operation of an entity, a criterion of dividend payments, the basis for taxation on income, a determining factor in wage fixing, a guide to management and so on. Question 1 Economist generally defined income in terms of well-offness. The purpose of income calculation in practical affairs is to give people an indication of the amount that they can consume without …

…maintenance. Studies conducted by academics had shown that income numbers are closely associated with share prices. Income numbers are used to measure the creditworthiness of firms and their future prospects. Various relationships between manager with shareholder, debtholder and government have provided different incentives to manage income determination. Therefore, the role of AASB 1018 and AASB 1004 comes into light where it restricts the choice of accounting treatments by managers, thereby enhancing communication among users of financial reports.