search query: @journal_id 56 / total: 1032
reference: 353 / 1032
| Author: | Draper, P. R. |
| Title: | An assessment of the effective annual rate method as a basis for making accounting allocations. |
| Journal: | Journal of Business Finance and Accounting
1993 : JAN, VOL. 20:1, p. 143-151 |
| Index terms: | COST ACCOUNTING COST ALLOCATION UNITED KINGDOM USA |
| Language: | eng |
| Abstract: | The effective annual rate method for the allocation of costs to accounting periods has been recommended in both the UK and the US. This paper assesses whether this method provides the most appropriate basis for reflecting economic substance in accounting allocations. An analysis of the effective annual rate establishes that it can be decomposed into the forward rates expected at the issue date of the borrowing. It is argued that only if forward rates are used for the allocation of costs to accounting periods will the profit and loss account charge reflect the expected costs for each period as at the date of the original transaction. A case study illustrates that choice of allocation method can have major effects on the profit and loss account charges. |
SCIMA