Normative accounting theories seek to provide guidance in selecting accounting procedures.

Required:

(a) Explain what normative accounting theory is using an example. What role does it play in accounting practice and financial reporting?

(4 marks)

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Theory is defined as a belief or principle that guides actions or behaviour.

Required:

(b) Describe what the underlying assumption of positive accounting theory is and how this assumption is used to explain managerial decision making in financial reporting.

(4 marks)

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AASB 13 Fair Value Measurement offers a range of valuation techniques that can be used to fairly value an asset.

Required:

(c) Explain the market approach and provide an example of an asset or a liability that is commonly measured using this approach.