Summary Far600 Chapter 8
FAR 600
CHAPTER 8
Principle in Accounting, and Recognition...
DEFENCE OF HISTORICAL COST ACCOUNTING i. Historical cost is relevant in making economic decisions. * Ijiri present 3 reasons historical cost is relevant for making decision * It effect the evaluation n selection of decision rules. It used the past info to measures the quality of their past decisions. * Provides input for satisficing notion where some managers make decisions that will support expected or satisfactory outcome. They are consider how much has already earned rather than how much mote they can earn. * It is used bcoz it imposed on decision makers by their environment. Eg: taxation decision n cost plus contract. ii. Historical cost is based on actual, not merely possible transaction. * Record done based on actual transactions made. * Ijiri- it possible to prepared a balance she on the basis of year-end market price without references to actual transactions. * Historical cost provides evidences for determining how efficiency management has meet their responsibilities. iii. Through history, FS based on historical cost have been found to be useful. * Mautz – “if whose who make management n investment decision had found financial reports based on historical cost useful over the years, changes in acctg would long since have been mad” iv. The best understood concept of profit is the access of selling price over historical cost. * People understand the basic notion of actual cost compared to the selling price as an access or profit. v. Acctg must guard the integrity of their data against internal modifications. * Historical cost is less subject to manipulation bcoz it is based on actual transaction occurred. vi. How useful is profit information based on current cost or exit price? * Current cost or exit price induce a short term view of profit. * But if the price of an asset at
CHAPTER 8
Principle in Accounting, and Recognition...
DEFENCE OF HISTORICAL COST ACCOUNTING i. Historical cost is relevant in making economic decisions. * Ijiri present 3 reasons historical cost is relevant for making decision * It effect the evaluation n selection of decision rules. It used the past info to measures the quality of their past decisions. * Provides input for satisficing notion where some managers make decisions that will support expected or satisfactory outcome. They are consider how much has already earned rather than how much mote they can earn. * It is used bcoz it imposed on decision makers by their environment. Eg: taxation decision n cost plus contract. ii. Historical cost is based on actual, not merely possible transaction. * Record done based on actual transactions made. * Ijiri- it possible to prepared a balance she on the basis of year-end market price without references to actual transactions. * Historical cost provides evidences for determining how efficiency management has meet their responsibilities. iii. Through history, FS based on historical cost have been found to be useful. * Mautz – “if whose who make management n investment decision had found financial reports based on historical cost useful over the years, changes in acctg would long since have been mad” iv. The best understood concept of profit is the access of selling price over historical cost. * People understand the basic notion of actual cost compared to the selling price as an access or profit. v. Acctg must guard the integrity of their data against internal modifications. * Historical cost is less subject to manipulation bcoz it is based on actual transaction occurred. vi. How useful is profit information based on current cost or exit price? * Current cost or exit price induce a short term view of profit. * But if the price of an asset at