QUESTION 2:

a) Explain the political cost hypothesis of Positive Accounting Theory.

b) If a reporting entity has a choice of either expensing or capitalising an item of expenditure, and if the entity is subject to a high degree of political scrutiny, then what choice would be predicted by the political cost hypothesis of Positive Accounting Theory? Explain your answer.

QUESTION 3:

Explain the efficiency perspective and the opportunistic perspective of Positive Accounting Theory. Why is one considered to be ex post and the other ex ante?