Question

Many firms’ compensation plans reward managers based on reported annual income.  How might the cost method of accounting for significant investments have resulted in unintended wealth transfers from owners to managers?  Do the equity or fair-value methods provide similar incentives?  Explain.

Answer 1

Pay arrangements reward to administrators dependent on overall gain of the organization. The organization use cost technique bookkeeping If Equity strategy uses implies, the proprietors of the organization and managers gets remuneration similarly. In any case, in the Fair Value Method the Net salary would be expands utilizing the Fair Value strategy. And after that the managers gets more motivating forces identify with Cost strategy and Equity technique.

Firms are presently permitted a Fair Value choice in their money related detailing for certain budgetary resources and monetary liabilities. Among the passing monetary resources for Fair Value revealing are huge impact speculations generally represented by the Equity strategy.