Question
(a) Flying Kite Corporation, a publicly listed company in Australia, has recently made a decision to change its accounting method for non-current asset depreciation from
(a) Flying Kite Corporation, a publicly listed company in Australia, has recently made a decision to change its accounting method for non-current asset depreciation from the straight-line method to the declining balance method (accelerated depreciation).
This shirt in accounting policy has resulted in a significant decrease in the reported depreciation expense for the current year, leading to a notable rise in the company's reported net income. The media have praised this increased profitability.
Required:
Drawing on the principles of Positive Accounting Theory (PAT), discuss the potential motivations behind Flying Kite Corporation's decision to change its accounting method for depreciation. Your answer should include references to the main hypotheses of PAT.
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