lec6_DW_Blackboard

lec6_DW_Blackboard - Disposable Wealth Learning Objectives...

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Unformatted text preview: Disposable Wealth Learning Objectives Examine the concept of disposable wealth Learn under what conditions performance can be measured using the income statement or balance sheet Note the distinction be recurring and non- recurring items Understand the distinction between net operating income and net income Distribution decisions = determining that portion of a firms wealth that can be distributed without impairing its initial wealth position. Disposable wealth = in wealth = Hicksian concept of income How do we represent wealth in a conventional accounting sense? Wealth = net assets OE = A - L W o W 1 OE o (HC) OE 1 (HC) Income = W Disposable wealth = OE-OE beg = OE end 1. Net operating income (NOI) 2. Additional owner investments (I) or withdrawals (W) 3. Gains (G) and losses (L) OE = f Assuming I, W, G, L are constant: Disposable wealth = OE = NOI = R -E NOI R - E (Income statement approach) OE (Balance sheet approach) OE = 30,000 OE = 45,000 NOI = OE = OE end- OE beg = 45,000 - 30,000 = 15,000 Assuming no I, W, G, L: NOI performance Disposable wealth R - E OE Assuming no G & L: OE = NOI + I - W NOI R - E (I/S approach) OE - I + W (B/S approach) OE = 30,000 OE = 45,000 I = 10,000 NOI = = 45,000 - 30,000 - 10,000 + 0 = 5,000 OE - I + W OE = 30,000 OE = 45,000 W = 10,000 NOI = 45,000 - 30,000 - 0 + 10,000 = 25,000 Assume no I or W: OE = NOI + G - L NOI performance R - E (I/S approach) disposabl e wealth OE - G + L (B/S approach) Gains & Losses Excluded from Performance Measures 3.00 2.50 2.00 1.50 1.00 1 2 3 4 time D D D $ Gains & Losses Included in Performance Measures 3.00 2.50 2.00 1.50 1.00 1 2 3 4 time D D D ?...
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This note was uploaded on 05/24/2008 for the course ACC 203 taught by Professor Choi during the Spring '08 term at NYU.

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lec6_DW_Blackboard - Disposable Wealth Learning Objectives...

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