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What is the concept of cost of acquisition of assets?
What is THe conept Of establishing prices?
What is an explanation of the cost concepts?
The concept of cost is that you should not spend above your limits.
What is the historical cost model?
Historical cost model is a valuation process for assets wherein they are valued at cost of acquisition plus all costs incidental to cost of acquisition.
What is the meaning of 'historical cost accounting'?
Historical cost accounting refers to an accounting method that records assets at their original purchase price, rather than their current market value. It is based on the concept that financial transactions should be recorded at their actual cost at the time of acquisition. This method provides a clear and objective way to measure and report financial information, but it may not always accurately reflect the true value and economic condition of a company's assets.
Will a business have an indefinite life unless it is likely to be sold or liquidated in the near future according to cost concept?
No, the cost concept does not dictate the lifespan of a business. Instead, it focuses on the historical cost of acquiring assets and the principle of conservatism in financial reporting. The longevity of a business is determined by various factors such as its profitability, market conditions, and management decisions, rather than the cost concept.
What is cost principle?
Accounting concept that goods and services purchased should be recorded at their historical cost and not at their current market value.
What are the advantage on historical cost accounting?
The main advantage of using historical cost on the balance sheet for property, plant and equipment is that historical cost can be verified. Generally, the cost at the time of purchase is documented with contracts, invoices, payments, transfer taxes, and so on.The historical cost of plant and equipment (not land) is also used to determine the amount of depreciation expense reported on the income statement. The accumulated amount of depreciation is also reported as a deduction from the assets' historical costs reported on the balance sheet. (In the case of impairment, some assets might be reported at less than the amounts based on historical cost.)The use of historical cost is also a disadvantage to those users of the financial statements who want to know the current values.
What are limitations of historical cost concept?
1.> No consideration of price level changes over time by holding constant purchasing power2.>The current market value of assets is ignored3.> The provision of depreciation under historical cost system is not sufficient for the replacement of assets4.>Profits are overstated during the period of inflation because revenues are recorded on current values whereas expenses at historical cost5.> Chance of overstating profit by selling historical cost assets6.> True performance of management may not viewAnswered by: Md. Robiul Alam FardeenUniversity Of DhakaBangladesh
What are the limitation of Historical Cost accounting?
Limitations of historical cost accounting include : • Depreciation charged on historically costed assets is only an arbitrary amount based on out-of-date values and estimated useful economic lives. • Depreciation charges do not take into account actual replacement cost of assets at current prices. • Profit will not reflect the actual 'costs' of trading, which include the replacement of assets at some point in time. • By not accounting for inflation, there is no assurance that the entity is maintaining its capital base. • Overstating profits by undercharging depreciation based on historical cost, and charging cost of sales at historical cost of inventories (and not current cost) can lead to the depletion of an entity's capital through high tas charges and distributions. • While historical cost accounting provides a consistent basis for entities to prepare accounts, inflation affects different products and markets, and hence entities, to different degree. • Historical cost accounting makes it difficult for shareholders and analysis to assess the real performance and abiliry of mamagement because changes to current market conditions are not accounted for in the historical valuation basis. • The true valuation of entities is difficult to assess under historical cost rules. • Interpretation of accounts over a period of time is difficult because each year relates to different purchasing powers. • Key ratios (such as return on total assets) are inflated under historical rules because profit is overstated (as outlined...
In a firm where assets are the major cost how is profit maximized?
By increasing revenues or the cost of the assets.
What are the different cost concept?
different cost concept
What is the definition of Historical Cost?
what is the definition of historical cost
