Sample Essay

Under financial accounting standards the values of assets and liabilities can be recorded under the historical cost approach or fair value approach. Supposing the company applies the historical cost approach then the positive accounting theory will explain that the assets and liabilities have been recorded on historical cost without explanation of any implications on future presentation of financial statements.

The normative accounting theory on the other hand would describe the implication of using the historical cost approach and recommend the use of fair value so that values on the financial statements can be presented at reliable and relevant levels. The theory for ideal and non ideal conditions would state that the values should be taken at historical cost for more accurate presentation of values whereas the decision usefulness theory would explain that fair value accounting should be used so stakeholders can make

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