Reference no: EM13500431

Ireka is a property development company. Although it has achieved 13.5% rise in underlying profit in the years of 2009-2010, and a forecast of a double digit growth for 2011, the market was not impressed. Against the 52 week high of $14.24, the price is now $12.91 only, which is due to lack of excitement, compared with its history as a glamour stock.

At $12.91, Ireka shares yield 4.4%, based on the 2009-2010 dividend of 57 cent. The payment is due to partly franked and the outlook is for more of the same. Chief financial officer Mr. David says that the about one third of the earnings come locally, the franking credits should be enough to provide 40-50% dividend franking on a 60-80% profit payout. This means investors need a higher yield than would be required from a comparable company paying fully franked dividends. The present price reflects this. As a result, the return looks reasonable, certainly if double digit earnings and dividend growth can be sustained.

(a) In trying to explain shareholders' subdued reaction to Ireka reported earnings, explain whether and/or how you could use the following approaches to accounting theory construction:
- Define the meaning
- Come out with respond

(i) pragmatic

(ii) positive accounting theory

(iii) normative theory

(iv) scientific approach

(v) naturalistic approach

(b) Which of the approaches described in answer to question (a) do you believe is most useful? Why?

(c) Are the approaches you described in answer to question (2) mutually exclusive, or can they be used to complement each other? Explain?