What are the Strength and weakness Continuously contemporary accounting?

Answer 1

Some strengths of Continuously Contemporary Accounting would include:

· CoCoA provides information about an entity's capacity to adapt. Chambers considers such information crucial for effective decision making

· It solves the 'additivity' problem-there is a common basis of valuation (net-market values) so it makes logical sense to add the various asset values together.

· There is no need for arbitrary cost allocations through depreciation.

Some weaknesses of Continuously Contemporary Accounting would include:

· Not all assets will have a readily determined market price-hence a deal of subjectively will be involved.

· Some 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 separate 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 community 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 social 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 selling 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 unique assets introduces a degree of subjectivity into the accounting process.