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Methods Of Accounting For Assets - Paper

Methods Of Accounting For Assets

The purpose of this essay is to explore the arguments surrounding the most appropriate method of accounting for assets. The historical cost form of evaluating assets should be used in conjunction with some version of market value. There are advantages and disadvantages for the use of historical cost and the conceptual framework has the potential to affect the application of historical cost as well. Historical cost accounting does have its deficiencies but the advantages of historical cost justify keeping the traditional method of accounting for assets.
The Australian Conceptual framework sees general purpose financial reports focusing 'on providing information to meet the common ...

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to assist them to assess the financial performance of the entity over the reporting period' (SAC 2 Paragraph. 29). Further 'the financial position of the reporting entity involved disclosure of information about its control over resources, financial structure, capacity for adaptation and solvency'. Finally the information presented must satisfy the qualitative characteristics. However the conceptual framework does not resolve the issue of whether the information is to be measured on a historical cost basis or a market value cost.
Many people have attacked the use of historical cost in conventional accounting. The people who defend historical cost have presented the following arguments to support their position.
1. Historical cost is relevant in making economic decisions. - As managers make decisions, they need data on past transactions to help decide on what to do. They must be able to review their past efforts, and the measure of these efforts is historical cost. ...

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Methods Of Accounting For Assets. (2004, August 22). Retrieved November 28, 2024, from http://www.essayworld.com/essays/Methods-Of-Accounting-For-Assets/13062

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PAPER DETAILS

Added: 8/22/2004 12:14:03 AM
Category: Economics
Type: Free Paper
Words: 915
Pages: 4

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