Historical cost accounting Essay

Advantages diachronic salute accounts be straightforward to produce Historical price accounts do non record deduces until they are realized Historical cost accounts are solace phthisisd in most accounting systemsDisadvantagesHistorical cost accounts evanesce no indication of current places of the summations of a business Historical cost accounts do not record the opportunity costs of the use of older assets, particularly property which may be recorded at a repute based on costs incurred many geezerhood ago Historical cost accounts do not measure the injury of value of monetary assets as a result of inflation. modern purchase power accountingAdvantagesCPP system adopts the same unit of measurement by fetching into account the price changes. Under CPP method, historical accounts continue to be maintained. CPP statements are prepared on supplementary tush. CPP method facilitates the calculation of gain or loss in purchase power due to the guardianship of monetary it ems. CPP method uses common purchasing power as meter unit. So, the comparative study is easy. CPP method provides reliable financial instruction for taking management decision to formulate plans and policies. CPP method ensures keeping intact the purchasing power of capital contributed by shareholders. So, this method is of great importance from the shoot of view of the shareholders.DisadvantagesCPP method considers only the changes in worldwide purchasing power. It does not consider the changes in the value of individual(a) items. CPP method is based on statistical indication number which cannot be used in an individual firm. It is very difficult to choose a suitable price index.CPP method fails to remove all the defects of historical cost accounting system. The use of general price index for CPP method is questioned. While general price index administers with consumer goods, business is interested in the price movement of producer goods.Current cost accountingAdvantagesM ore relevant Provides up to date cultivation with financial markets Takes inflationary adjustments into account. Critics give argued market value(current cost) reveals economic realities that are hide by historical cost accounting. Investors and creditors also prefer the market value accounting. the information active the market value at the reporting date, the changes in that value and the components of that change- all provide the investors the valuable information for his decision making. In F/S, easier to view and determine whether the asset or liability is at risk or notDisadvantagesUnreliable Volatile, when market price of an asset and liability is not available, the value is estimated (inappropriate) Continuously contemporary accountingStrengths drinking chocolate provides information about an entitys capacity to adapt. Chambers considers such information crucial for effective decision making It solves the additivity problem-there is a common founding of valuation (net-m arket values) so it makes logical sense to add the various asset values together. There is no need for arbitrary cost allocations through with(predicate) depreciation.WeaknessesNot all assets will have a readily laid market price-hence a deal of subjectively will be involved. close to assets can generate income within a particular entity, but have little or no value to anybody else (for example, the case of the blast furnace). The value in use of such assets is ignored. It values assets on the basis of the dampen disposal of the respective assets. The implication of this is that assets which cannot be separately sold are deemed to have no value-for example, goodwill. This attribute of CoCoA has attracted a great deal of criticism. CoCoA has never had widespread acceptance within the business lodge and hence there would be numerous obstacles to its implementation.Because CoCoA would represent a radical departure from current methods of accounting, its adoption could cause major affable and economic implications. People are used to preparing and reading historical cost accounting reports, hence there would be a need to re-educate them about the strengths and limitations of CoCoA-this might be costly. If an entity does not expect to sell an asset, it is questionable whether the marketing price is really that relevant. Tied to the above point, valuing all assets on the basis of selling prices has been criticised if it is considered that the entity is a going concern. Determining the market price of peculiar assets introduces a degree of subjectivity into the accounting process.