The FASB Has Been Struggling with the Issue of Determining

question 47

Essay

The FASB has been struggling with the issue of determining the difference between debt and equity financing for nearly twenty years.The Board is concerned that many provisions of U.S.GAAP conflict with the definition of a liability given in the Conceptual Framework.As a result,the Board is considering a new approach to distinguishing between debt and equity financing.
The method currently favored by the FASB is called the "basic ownership approach."
Required:
Explain the basic ownership approach and identify what effects,if any,this approach would have on financial accounting and reporting.

---

Definitions:

Derived Demand

A demand for a commodity or service resulting from the demand for something else, typically goods or services used in the production of other goods or services.

Demand for Popcorn

The desire or consumer's willingness to purchase popcorn at various price levels.

Movie Tickets

Financial tickets purchased to gain entry to view films in theaters.

Marginal Revenue Product

The extra income produced by using an additional unit of a production element, like labor or capital.