Question

1. Chambers argues that a property has the characteristics of order and additivity. Explain, in the context of financial reports in accounting, what the “additivity” problem that Chambers is referring to.

Answer 1

The additivity problem that the chamber is referring here is :

The financial reports in accounting based on the historical cost basis suffer from the problem of the irrelevance of rising prices of the assets. An asset which was purchased many years ago might have different value today.

Also, the additivity problem says that two assets purchased at different points of time with the different purchasing power of money (inflation changes) are added together and considered the same. This doesn't lead to a fair presentation of the true value of assets in the financial reports.