ALL ABOUT ACCOUNTING :- 10th BLOG

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               *****ACCOUNTING*****

Hi freinds 🙏.,
           Today's discuss 5th accounting principles...

 So let's discuss...

  ★ HISTORICAL COST :- 
The historical cost principle is a basic accounting principle under U.S. GAAP. Under the historical cost principle, most assets are to be recorded on the balance sheet at their historical cost even if they have significantly increased in value over time.

  * Importance of historical cost :- 
The concept of historical cost is important because market values change so often that allowing reporting of assets and liabilities at current values would distort the whole fabric of accounting, impair comparability and makes accounting information unreliable.

  * Difference between historical cost and fair value:- Historical cost is the transaction price or the acquisition price at which asset was acquired or transaction was done, while Fair value is the market price that asset can fetch from the counterparty. ... However, Fair value based accounting helps better comparability.

  * Limitation of historical cost accounting :- 
Limitations of historical cost accounting include : Depreciation charged on historically costed assets is only an arbitrary amount based on out-of-date values and estimated useful economic lives. Depreciation charges do not take into account actual replacement cost of assets at current prices.

  * Advantages of historical cost accounting :- 
Advantages of using this cost concept include objectivity and reliability of accounting information, simplicity and convenience, and consistency and comparability of financial statements.

  * Example of historical cost :- 
For example, the historical cost of an office building was $10 million when it was purchased 20 years ago, but its current market value is three times that figure.


















★Remaining 8 principles discuss in 11th blog..★
                                   
                                  ★So wait my 11th blog.....★

                   _____________________________

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