In recent years major efforts have been made to standardizeaccounting practices
ID: 2914723 • Letter: I
Question
In recent years major efforts have been made to standardizeaccounting practices in different countries; this is calledharmonization. In an article in Accounting and BusinessResearch, Emmanuel N. Emenyounu and Sidney J. Gray (1992) studiedthe extent to which accounting practices in France, Germany, andthe UK are harmonized.
a. Depreciation method is one of the accounting practicesstudied by Emenyounu and Gray. Three methods were consideredthe straight-line method (S), the declining balance method (D), and a combination of D & S (sometimes European firms startwith the declining balance method and then switch over to thestraight-line method when the figure derived from straight lineexceeds that from declining balance). The data in Table 11.5summarize the depreciation methods used by a sample of 78 French,German, and U.K. firms. Use these data and the MegaStatoutput to test the hypothesis that depreciation method isindependent of a firm's location (country) at the 0.5 level ofsignificance.
Table 11.5
Depreciation
Methods France Germany UK Total
A. Straight Line(S) 15 0 25 40
B. Declining Bal(D) 1 1 1 3
C. (D &S) 10 25 0 35
TotalCompanies 26 26 26 78
50.89chi-square 4 df 2.35E-10 p-value
Explanation / Answer
Solution:
Hypothesis:
Null hypothesis:
H0: the depreciation method is independent of afirm's location (country)
Alternative hypothesis:
H1: the depreciation method is dependent of a firm'slocation (country)
Level of significance: a =0.05
50.89 chi-square ( given in output )
2.35E-10 p-value
Conclusion:
P –value is less than the 0.05, clearly conveys thenull hypothesis rejected,
thus we conclude that the depreciation method is dependent of afirm's location (country)
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