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AG203

AG203. Value Theories Week 3. Accounting and Economics. ….differ in terms of their approach to income and capital their difference is a question of value! Accounting evaluates market price* (to report) for an entity …..uses past or current values to influence behaviour

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AG203

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  1. AG203 Value Theories Week 3

  2. Accounting and Economics ….differ in terms of their approach to income and capital their difference is a question of value! • Accounting evaluates market price* (to report) for an entity …..uses past or current values to influence behaviour • Economics evaluates subjective preference* of individuals ….uses predictions to influence behaviour * both measure value in money

  3. ECONOMIC THEORY - FISHER • Income = (personal) consumption “psychic enjoyment” …derived from consuming capital assumes a perfect world in which market values are constant & we have perfect market knowledge IDEAL income • capital maintenance is not an issue!

  4. ECONOMIC THEORY - HICKS • Income = consumption + savings “welloffness” ..derived from consuming capital assumes that we live in an uncertain world and market values change • closing capital should be maintained before we recognize income! Change is represented as realised and unrealised WINDFALL gains/losses

  5. VALUATION DEBATES How do we value a life/ health? • What is the value of clean air, land & water? • Are these “free goods”? If they have no market price…. no monetary value - who pays for them? Who maintains them? • Fines value the cost pollution? This could include health impairment. Are fines/ compensation adequate?

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