COMM 318 Chapter Notes - Chapter 2: Standard Cost Accounting, Historical Cost, Dividend Policy

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Provides utmost in relevant informaion to inancial statements: relevant informaion: informaion about the irm"s future economic prospects (dividends, cash lows, proitability) Dependent on condiions as to whether relevant informaion will also be reliable: reliable: informaion faithfully represents the irm"s inancial posiion and results of operaions. Ideal condiions with certainty future cash lows of the irm and the interest rate in the economy are publicly known with certainty. Net income is predictable, and therefore primary form of valuaion becomes the balance sheet accounts. When ideal condiions don"t exist, the income statement becomes the dominant form of irm valuaion. Present value of an asset or liability will equal market value (value in use and fair value are equal) Future cash lows are known by assumpion, thus esimates are not applicable. The process of arbitrage ensures market value of an asset equals present value of future cash lows.

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