Abstract This paper is written for the accounting theory course as a course project. This paper discusses the differences between the historical cost accounting approach and the fair value accounting approach. The discussion will focus on the debate on using which accounting approach. We begin by stating the definitions of both concepts and discussing them thoroughly‚ then we state the main advantages of the two approaches followed by comparison between them. The last section of this paper discusses
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Difference between historical cost and fair value accounting In order to make the most profitable and rational decisions entity’s stakeholders have to evaluate organisation’s financial statements. Today’s world of rapidly changing prices has made it difficult to estimate what something is actually worth. Thus leading to debates at what price – historical costing price or market value – assets and liabilities should be reported. Therefore‚ before making any evaluations about reported transactions
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online journals of Historical Cost and Fair Value: 1. Summary of HISTORIC COST VERSUS FAIR VALUE In accounting historical cost is the original or nominal amount of money paid for asset rather than inflation adjusted price. In other words it is the resource given up or a liability incurred to acquire an asset. The historical cost principle states that the asset should be reported at it cost (cash or cash equivalent amount) at the time of exchange and should include all cost necessary to get the
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The historical cost accounting is an accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition. It is usually used in combination with other measurement bases. For example‚ inventories are usually carried at the lower of cost and net realizable value‚ on the other hand marketable securities are usually carried at market value‚ and entities prefer to carry pension liabilities at their present value. The main advantage of using
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| Abstract This document is concerned with the relationship between the financial crisis and fair value accounting. Its purpose is to make an understanding of the strengths and limitations of fair value accounting. The report also gives some examples of fair value accounting measures used in several Australian companies. In this report‚ City Weat Water LTD and JB HI-FI LTD are used to explain that. Introduction With the modern transportation and communication technology development‚ in the industrial
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Fair value How your property valuations can be fully compliant with HKFRS 13 Property valuations are commonly required for financial reporting purposes. Gary Stevenson explains how they need to meet the upcoming standard on fair value measurement H KFRS 13 Fair Value Measurement provides a single comprehensive source of guidance on how fair value is measured for financial reporting purposes. The standard is applied prospectively for annual periods beginning on or after 1 January
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to do so. Currently‚ I am most interested on the hot debate over “fair-value accounting” vs. “historical cost.” This debate causes trouble to the SFAC #2 Qualitative Characteristics of Accounting Information. In fact‚ this debate is really over “relevance” vs. “reliability”. Fair-value accounting is argued to be relevant‚ whereas historical cost accounting is argued to be reliable. Fair -Value Accounting Pros: Fair-value accounting provides relevant information‚ capable of making a difference
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accounting system. Although the differences between IFRS and GAAP are rapidly reducing owing to the convergence agenda of both organizations‚ there are still some significant ones. 1. IFRS has forbidden the use of LIFO method when calculating inventory cost while GAAP still allows this method. 2. IFRS allows the reversal of inventory impairment while GAAP forbids the reversal. 3. In cash flow statement‚ when it comes to cash collected or paid on interest‚ in GAAP‚ it must be classified to cash flow
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Historical cost is a traditional method of recording assets and liabilities at their original or nominal value without making adjustments for inflation. It first came in evidence in Jun 1979 in a French project after numerous debates. The historical cost principle states that the asset should include all cost necessary to get the asset in place and ready for use. The principle of historical cost is based upon two fundamental principles: the principle of monetary standardization and principle of
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D) never equals average product. Ans: C Exhibit 3 4. (Exhibit 3: Short-Run Costs) Curve A is the _______ cost curve. A) average total B) average variable C) marginal D) total Ans: C Exhibit 4 5. (Exhibit 4: A Firm ’s Cost Curves) The curve labeled V represents the firm ’s _______ curve. A) total cost B) average total cost C) marginal cost D) average variable cost Exhibit 5 | | 6. | (Exhibit 5: The Market for Carrots) If demand is D1‚
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