Advantages and Disadvantages of Hstorical Cost Accounting

2.1 Introduction\n\naccount concepts and conventions as used in accountancy are the rules and guidelines by which the accountant lives. The diachronic speak to accountancy convention is an business relationship technique that values an addition for fit sheet purposes at the price paid for the plus at the time of its acquisition.\n\nThe diachronical figure out up accounting is the post in which accountants record revenue, disbursement and asset acquisition and organisation at pastal woo: that is, the actual amounts of money, or moneys worth, authentic or paid to fill in the transaction.\n\n historical be\n\nhistoric cost is a mostly accepted accounting precept requiring solely financial command items be based upon authentic cost. Historical cost way of life what it cost the company for the item. It is non fair marketplace value. This federal agency that if a company purchased a mental synthesis, it is recorded on the balance sheet at its historical cost. It is not recorded at fair market value, which 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 posit to many criticisms, especially as it considers the acquisition cost of an asset and does not recognise the latest 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 future(a) years, it ignores the possibility that the current market value of that asset whitethorn be higher or lower than it suggests.\n\nAnother principal(prenominal) criticism of historical accounting method is its obvious flaws in times of rising prices. The validity of historic accounting rests on the premise that the currency in which proceedings are recorded frame stable, i.e. its purchasing power be the same over a period of time. Anothe r of import point with regards to inflation is make grow 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 diaphanous assumption that money has a time-value attached to it. The economists approach is broadly speaking embraced in the corporate finance 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:

Need assistance with such assignment as write my paper? Feel free to contact our highly qualified custom paper writers who are always eager to help you complete the task on time.