NORMATIVE THEORIES OF ACCOUNTING: THE CASE OF ACCOUNTING FOR CHANGING PRICES

This paper gives an overview of the limitation of historical cost accounting in its ability to cope with various issue associated with changing prices as well as market conditions. There are a number of alternative accounting methods which have been being developed to address problems associated with changing prices and market conditions in arriving at market values, including fair value accounting. Each of the alternative accounting methods has its own strength and weakness. The calculation of income under a particular method will depend on the perspective of capital maintenance which has been adopted.