"The Principle Of Historical Cost Is Still Used In Accounting When There Is A Large Measure Of Agreement That It Is Inappropriate." Discuss.

1225 words - 5 pages

Synopsis.Historical Cost Accounting is a traditional valuation method as it reflects only on the past cost of the asset, however in the contemporary business environment companies must remain flexible and transparent. This belief has lead to the creation of several other valuation methods, due to word constraints I have focused primarily on Fair Value Accounting as an alternative to Historical Cost Accounting. Although Fair value accounting is a theoretically superior valuation methodology, there are several severe problems in its current application, due to lax regulations and ineffective methods of determining current values of non-current assets. These problems within Fair Value Accounting have ensured that most companies conservatively remain using Historical Cost Accounting.What are Historical costs?Historical cost is a generally accepted accounting principle requiring all goods or assets used in production to be valued by the expenditures actually incurred to acquire those goods or assets, however far back in the past those expenditures took place (System of National Accounts, 1993). Valuing assets upon their original cost ensures valuations are objective, reliable and may be verified through invoices and documentation. Furthermore, accumulative depreciation ensures that the cost of the asset is spread throughout its productive lifetime. This method smooths out speculative fluctuations within Financial Statements to reflect comparable changes in company performance. The American Accounting Association (AAA 1936, p188) supported this view;"...accounting is thus not essentially a process of valuation, but the allocation of historical costs and revenues to current and succeeding fiscal periods."Criticisms of Historical cost AccountingHistorical cost method, over a period of time has been subject to many criticisms, especially as it tells the user the acquisition cost of an asset and its deprecation in the following years, but ignores the possibility that the current market value of that asset may be higher or lower than it suggests. This occurs due to the various factors, other than the state of the good, that influence price. Rees (2004, p 21) expresses the need for fair value accounting within the Real Estate industry as land and houses tend to only increase in value over time.Another main criticism of Historical accounting method is its obvious flaws in times of inflation. The validity of historic accounting rests on the assumption that the currency in which transactions are recorded remains stable. However, inflationary pressures erode the purchasing power of money, therefore asset valuations should increase relative to inflation to reflect these changes. In addition effects of inflation may not be the same for all the companies in the market and historical cost accounts become almost unhelpful when comparing corporate performance.Alternatives to historic cost accounting.AASB 1010 Accounting for Revaluation of Non-Current Assets allows a...

Find Another Essay On "The principle of historical cost is still used in accounting when there is a large measure of agreement that it is inappropriate." Discuss.

VaR is a method of assessing risk that uses standard statistical tehniques routinely used in other tehnical fields. Based on firm scientific foundations, VaR provides users with a summary measure of...

3789 words - 15 pages the toolkit of risk managers because it provides a quantitative measure of downside risk. In practice, the objective should be to provide a reasonaly accurate estimate of risk at a reasonable cost. This involves choosing among the various industry standards a method that is most appropriate for the portfolio at hand.There are three principal approaches to calculating VaR:The Analytical approach;Historical Simulation;Monte Carlo Simulation;Each

There are several factors that could to the point that they would owe measure an example is improving communications

648 words - 3 pages pay it to no one plan will detract sales persons from the focus that to offer varying levels of good idea conceptually while being not the desired product mix With variations in commissions Sales incentives should be based on outcomes that can be position to influence gross profit or net profit incentive compensation payable monthly Establish minimum sales performance levels the management-by-objective incentives unless the objectives a levels These personnel however can make them of higher levels of sales ReferencesBaldauf A Cravens A theoretical perspective Management Science Merchant K A van der which there exist any significant line

Consider and discuss the following statement: "In any organizational change it is inevitable that there will be 'winners' and 'losers'; conflict between individuals and groups is only to be expected."

2957 words - 12 pages by an example: if a company wants to cut down employee's salary for its future development, obviously it is good for company, but is it still good for individual? So pluralism perspective considers that good for organization is not must be good for individual, so when the change happened, the conflict between group and individual will be display immediately.To sum up, In any organizational change it is inevitable that there will be 'winners' and

"There is always a moment in childhood when the door opens to let the future in." Discuss with reference to two stories from "Twenty One Short Stories" (Graham Greene)

517 words - 2 pages Graham Greene always believed that at a point in a child's life, an experience takes place that changes the child in a major way.This is clearly seen in 'The Hint of an Explanation', a dialogue between a child and a man (who we realize is a priest at the end), who recounts a childhood experience, which to him, contains a 'hint' that God exists. As a child, he used to serve at the mass, which was a 'routine like drill', never taken seriously, and

Montana 1948 -Larry Watson Question: Montana 1948 shows that when the truth is not told people and communities suffer. Discuss

753 words - 3 pages . This issue lead to extreme conflict within the family inevitably resulting in suffering and destruction of the family.Montana 1948 shows that when the truth is not told people and communities suffer. Frank's suicide was a result of him not wanting to be a part of something that would shame the Hayden name. Although his death may have been the solution to the family and communities problems, it was a way out of justice being found. Yes the Indian

Discuss ONE adaptation that, in the process of its adaptation, ‘travel[s]’ to a different context (these might involve cultural or historical cont

2008 words - 9 pages riches of Indian culture or through critiquing past and current western imperialist efforts’ (324). She is scathing of Darcy when he expresses his interest in purchasing a hotel in Goa, exclaiming that the resort would not embody the ‘real India’ (Bride and Prejudice). Indeed, the settings within the film seemingly serve to present Chadha’s critique of aspects of the commercialised and globalised world, as well as being used to ‘communicate a strong

In the Renaissance, choice of genre depended, in large part, upon the desire to find a form in which to 'speak out' about political realities that could not be addressed directly. Discuss

2396 words - 10 pages contributed to the breeding of the humanist movement as a simultaneously philosophical and politically aware group. Gasping in awe at the magnitude of man's achievements, the humanists developed strong appreciation for man as a human being, "the speaking animal." They sought to unearth the mind's full potential without having it burdened by the "ecclesiastical despotism" that was rife in the early sixteenth century. There was widespread

In The Significance of the Frontier in American History Frederick Jackson Turner says that there are certain traits of the west that influenced in the past and still do

1268 words - 5 pages , and other factors which temporarily deterred these settlers from obtaining what they wanted. Still, it was only a momentary pause which seemed resumed it's pace (though not as quickly) as easterners were "compelled to adapt themselves...in developing each area... of the primitive economic and political conditions of the frontier." As Turner mentions it is the return to the primitive conditions on the frontier which made acceptable their new

Assessment of the View that it is Rational to Believe that there is a God

1058 words - 4 pages Assessment of the View that it is Rational to Believe that there is a God Rational: To be rational is to think logically and within reason. To base your thoughts on evidence, and then use that evidence to come to a "rational" conclusion. Motivation: To be motivated to do or think something, normally the motivation will be because it will benefit you in the long run. Many philosophers use theses types of words when

There is no doubt that both Ovid, from Imaginary Life, by David Malouf and William Wordsworth eventually come to appreciate their new surroundings. Discuss

1928 words - 8 pages . Wordsworth also sees god in nature in the Prelude he climbs a mountain moving in an ascending motion and therefore giving the impression of his movement towards god also the poem Beauteous evening Wordsworth makes the point that there is spirituality in nature he tells his daughter that even though she does not appreciate nature as much as him it does not mean that she is not as devote as him e.g. if one was not to have a garden in his house it

Consider the arguments for prefabrication in relation to house building and discuss some of the problems that house builders face when developing and implementing house building systems

1775 words - 7 pages erection, far quicker than traditional methods - within days, a new home could be watertight and airtight."There is only 1 solution to the problems of post-war housing - it can be expressed in 3 words - use the machine." 6This method of construction, was hoped, that it would overcome the inefficiencies of traditional construction. It came about by the belief, that housing could be mass produced with all the benefits this enrolled in terms of cost

Similar Essays

My Essay Gives A Description Of The Cost Principle, Revenue Recognition Principle, Matching Principle And All Of There Differences, All The Work Is Cited And Refrenced

1235 words - 5 pages , you go back to your books and see that your automobile is still recorded at $35 000, even though it is only worth $18 000. In order to compensate you have an "Accumulated Amortization - car" account with a credit balance of $17 000. This shows that you can still have the asset recorded at cost, while only being worth market value. The Matching Principle: The Matching Principle states that expenses should be matched with revenues in the fiscal

Is The Jewish Seder Meal Just A Tradition That Jews Practice Or Is There A Spiritual Experience And Depth When It Comes To Eating And Taking Part In T

1100 words - 4 pages both a traditional look at the Seder meal as well as a spiritual look at the Seder meal and because of this I was not able to find the answer to the question “Is the Jewish Seder meal just a tradition that Jews practice or is there a spiritual experience and depth when it comes to eating and taking part in this meal? In order to answer this question I felt it necessary to interview three Jewish individuals to see their point of view on this

When Is Drug Testing Not Nearly Enough? This Essay Is About The Pre Employment Tests That Are Being Used In Order For An Applicant To Get A Job. It Focuses On Drug Testing And Psychological Testing

1822 words - 7 pages when she was done the manager told her that she had gotten a few answers "wrong" (Ehrenreich 86).I found a few articles out of the Occupational Hazards magazine. One article that I read talks about the importance of drug testing in the work place. It talks about how effective drug testing really is. It also explains the law and rules of drug testing in the work place. It gives different examples of studies performed to prove that there is a

Miracles Identify A Philosopher And Examine Their Understanding Of The Term Miracle. Examine Arguments That Can Be Used To Discredit Belief In Miracles. How Is Belief In Miracles Still Strong?

2604 words - 10 pages to be, if an apparently infeasible and perhaps "impossible" event happens, then we have rights to class it as a miracle. His argument links to the principle of Ockham's Razor, which suggests that the most simplistic argument is the most philosophically legitimate.It is commonly though that there is no scientific proof to verify the existence and occurrence of miracles in the world today, however, this is widely recognised as debatable. Evidence of