ABSTRACT
This chapter presents the application of estimation theory to a single-asset problem and extends the theory to the multi-asset situation. The single-asset approach dominates modern accounting. The particular problem on which estimation theory was developed can be stated as follows: The accountant wishes to select a method for allocating the know cost of an asset over its useful life, which also is assumed to be known. The purpose of the cost assignment is to obtain a number called 'period income', which can be translated into an estimate of a financial parameter associated with the asset. All present value methods, whether applied to lease accounting, depreciation, bond discount and as well as other procedures such as percentage completion methods, can be recast as estimation methods. Thus, estimation theory provides a new way to interpret both the matching principle and the realization postulate, two of the most basic ideas in financial accounting.
