2.
A. Valuing investments at costs is useful when prices are stable or where prices change slowly. Since it is reported at cost, it cannot be manipulated and is easily verifiable. Historical cost is also less subject to manipulation because they are measured and reported objectively. In Olympus’s case, they used historical cost because it helped them cover up their massive losses when the bubble in Japanese asset prices burst. The cons of the historical cost method are that the numbers are misleading and they are not relevant for decision-making. Valuing investments at fair value takes into account market fluctuations in prices and records the investments at their market value. This approach is conservative since it requires companies