VII. Complete the sentences with words or word combinations from the text “Asset Cost”.

1. Monetary assets are usually measured by …

2. Other assets are measured at …

3. The balance sheet shows how much …

4. … is the sum of all the expenditures the company made to acquire it.

5. This amount is not always easily …

6. Accountants are … to accept value as the basis of asset measurement in the going concern.

VIII. Check your grammar. Use the necessary form of the Passive Voice.

1. Assets usually (to measure) at their value to their owners.

2. That amount (to pay) by the company last year.

3. The cash (to receive) in future.

4. Cash inflows (to expect) to be delayed.

5. Interest on the investment already (to deduct).

6. Value may (to represent) by the amount the company could obtain by selling its assets.

IX. Using the information from the text

1. Name three factors which value depends on.

2. Explain how these factors are interconnected.

3. Sum up the principles of measuring assets.

Unit XIII

Measurement Principles

Net Income

Part I

Grammar: Question Structure

Wordlist

approach	підхід	подход
bill	рахунок, пред’являти рахунок	счет, предъявлять счет
consume	споживати, витрачати	потреблять, расходовать
deliver	доставляти	поставлять
estimate	оцінка, кошторис, калькуляція	оценка, смета, калькуляция
expense estimates	кошторис витрат	смета расходов
gross sales	валова сума продажу	валовая сумма продаж
injection	“впорскування”	“впрыскивание”
judgment	оцінка, судження	оценка, суждение
pertain to	мати відношення до…, належати до…	иметь отношение к…, принадлежать к …
reject	відкидати, відхиляти	отвергать, отклонять
revenue estimates	кошторис прибутків	смета доходов
substantiate	обґрунтовувати	обосновывать
susceptible	схильний/той, що піддається	подверженный/ поддающийся
verification	перевірка, контроль	проверка, контроль
wealth	матеріальні цінності, достаток	материальные ценности, богатство, изобилие

I. Read the text and find out what the two sets of estimates required for recognition of income are.

From an economic point of view, income is defined as the change in the company’s wealth during a period of time, from all sources other than the injection or withdrawal of investment funds. Income is the amount the company could consume during the period and still have as much real wealth at the end of the period as it had at the beginning. For example, if the value of the net assets (assets minus liabilities) has gone from $1,000 to $1,200 during a period and dividends of $100 have been distributed, income measured on a value basis would be $300 ($1,200 minus $1,000, plus $100).

Accountants generally have rejected this approach for the same reason that they have found value an unacceptable basis for asset measurement: Such a measure would rely too much on estimates of what will happen in the future, estimates that would not be readily susceptible to independent verification. Instead, accountants have adopted what might be called a transactions approach to income measurement. They recognize as income only those increases in wealth that can be substantiated from data pertaining to actual transactions that have taken place with persons outside the company. In such systems, income is measured when work is performed for an outside customer, when goods are delivered, or when the customer is billed.

Recognition of income at this time requires two sets of estimates: (1) revenue estimates, representing the value of the cash that the company expects to receive from the customer; and (2) expense estimates, representing the resources that have been consumed in the creation of the revenues. Revenue estimation is the easier of the two, but it still requires judgment. The main problem is to estimate the percentage of gross sales for which payment will never be received, either because some customers will not pay their bills ("bad debts") or because they will demand and receive credit for returned merchandise or defective work.

Expense estimates are generally based on the historical cost of the resources consumed. Net income, in other words, is the difference between the value received from the use of resources and the cost of the resources that were consumed in the process. As with asset measurement, the main problem is to estimate what portion of the cost of an asset has been consumed during the period in question.

II. Re-read the text to find the answers to these questions.

1. How is income defined from an economic point of view?

2. What approach to income measurement have accountants adopted?

3. What income do accountants recognize?

4. When is income measured?

5. What two sets of estimates does recognition of income require?

6. What do these estimates represent?

7. What are expense estimates based on?