Advantages and Disadvantages of Hstorical Cost Accounting

2.1 Introduction\n\n report concepts and conventions as used in accountancy are the rules and guidelines by which the accountant lives. The diachronic pass up score convention is an story technique that values an addition for equilibrize sheet purposes at the price paid for the addition at the time of its acquisition.\n\nThe diachronic approach accounting is the lieu in which accountants record revenue, usance and addition acquisition and governing at historical cost: that is, the actual amounts of money, or moneys worth, reliable or paid to stop the transaction.\n\nhistoric be\n\nhistoric cost is a in general accepted accounting regulation requiring both financial rehearsal items be based upon pilot program cost. Historical cost message what it cost the company for the item. It is not fair food market value. This sum that if a company purchased a twist, it is recorded on the balance sheet at its historical cost. It is not recorded at fair market value, whi ch would be what the company could sell the building for in the open market.\n\nCriticisms of the historical costs method\n\nHistorical cost method, over a period of time has been motif to many criticisms, especially as it considers the acquisition cost of an asset and does not recognise the menstruation market value. Historical costs is only interested in cost allocations and not in the value of an asset. While it tells the exploiter the acquisition cost of an asset and its depreciation in the succeeding(a) years, it ignores the possibility that the current market value of that asset whitethorn be higher or lower than it suggests.\n\nAnother primary(prenominal) criticism of historical accounting method is its obvious flaws in times of lump. The validity of historic accounting rests on the premiss that the currency in which transactions are recorded frame stable, i.e. its purchasing power rest the same over a period of time. Another main(prenominal) point with regards to inflation is switch off in prices for an asset. An asset purchased at a point in time may be expensive in future. The traditional accounting principles record all assets at an original cost and continue to use these historic figures throughout the assets life, while economists make a more plain assumption that money has a time-value attached to it. The economists approach is broadly embraced in the corporate pay model whose objective is centred on value creation for the shareholders.\n\nIn addition effects of inflation may...If you want to get a full essay, order it on our website:

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