Advantages and disadvantages of Historical Cost accounting Historical cost accounting has been a controversial method that experienced many criticisms over a period of time, especially since it considers the acquisition cost of an asset and does not recognize the current market value. Merits and demerits of this method are as follows. The most obvious advantage of HC accounting is objectivity. It is a predominantly objective system, which records the original cost of an item when it was purchased
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Discussion of the issues (2.5) * Limitation of historical cost accounting Historical cost accounting: assets are recorded at the amounts paid/ received at acquisition Problem: +) inflation, +) increase in asset values are not reflected in financial statements (wearing out of assets, increase in market value) Advantage: +) objective method: documentary evidence to prove the purchase price of an asset, or amounts paid as expense. +) costs can easily be verified. * Alternative method
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concepts are the rules and guidelines used in accountancy and one of these is the historical cost accounting. This concept is an accounting technique that values an asset on the balance sheet at the price paid for the asset at the time of its acquisition. Moreover, the historical cost accounting is the situation in which accountants record revenue, expenditure and asset acquisition and disposal at historical cost. This means the actual amounts of money, or money’s worth, received or paid to complete
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the use of historical costs in accounting?" Under Historical Cost valuation method all assets are presented on the balance sheet at their nominal (original) cost at the time of their acquisition. The Historical Cost method is the method prescribed by US GAAP for use by US companies. The proponents of the Historical Cost method often point out that one of the main advantages of such method is verifiability of initial cost information. This is true because the assets’ historical costs are based
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1 historical cost accounting (hca) is the situation in which accountants record revenue, expenditure and asset acquisition and disposal at historical cost: that is, the actual amounts of money, or money's worth, received or paid to complete the transaction. 2 nature of historical cost accounting this is one of those idiosyncratic headings that teachers dream up (me too, probably!) that meant nothing to me without further explanation 3 the big advantage of hca is that it leads to absolute certainty
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Nike, INC.: Cost of Capital Jul 31st, 2014 Case Approach As required in the instructions, the group will answer each of the questions regarding the case, along with its justifications. In addition, a spreadsheet will be attached with all the calculations regarding this case. Q1. What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? WACC is defined as the weighted average cost of capital, which
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In accounting, historical cost is the original monetary value of an economic item.[1] Historical cost is based on the stable measuring unit assumption. In some circumstances, assets and liabilities may be shown at their historical cost, as if there had been no change in value since the date of acquisition. The balance sheet value of the item may therefore differ from the "true" value. While historical cost is criticised for its inaccuracy (deviation from "true" value), it remains in use in most
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Financial Management Essay Benjamin Gray University of Maryland University College 7/31/16 Executive Summary The function of this essay is to examine why ratio and financial statement analysis are useful to any corporations. The ratio analysis is a useful tool for managers and investors that would like to evaluate the company’s financial health. By using this analysis companies are able to identify opportunities for growth and areas
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Financial Accounting Homework Case I: Land Securities Group Should Land Securities choose the cost or fair value model for reporting its investment property in its consolidated financial statements? a) Explain the financial statement effects of the different models b) Consider the perspectives of management, (current and potential) shareholders and lenders, as well as auditors c) Take into account the different objectives of financial reporting d) Conclude with a well-reasoned decision
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Advantages And Disadvantages Of Current Purchasing Power (CPP) Method CPP method is useful for finding out real financial position of organization. Following are the advantages of CPP method. 1. CPP method adopts the same unit of measurement by taking into account the price changes. 2. Under CPP method, historical accounts continue to be maintained. CPP statements are prepared on supplementary basis. 3. CPP method facilitates the calculation of gain or loss in purchasing power due to the
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