Advantages and disadvantages of historical cost accounting essay

The historical cost accounting is the situation in which accountants record revenue, expenditure and asset acquisition and disposal at historical cost: While it tells the user the acquisition cost of an asset and its depreciation in the following years, it ignores the possibility that the current market value of that asset may be higher or lower than it suggests.

However, there is an immediate flaw noted in its definition, where the costs have to be estimated. If in uncertainty you should step direct labor as a variable cost unless given clear index to the state.

Direct labor is a frequently steep cost. Replacement costs could be used as a possible alternative to historical cost method. Even so it is non uncommon for direct labor to be treated as variable cost.

Once a initial choice has been made, 2nd pick must be follow, if machine is to Advantages and disadvantages of historical cost accounting essay purchased Control accounting The comparing of an alternate classs of action may be facilitated the usage of cost informations. In crude terms replacement costs may be defined as the estimated amount that would have to be paid in order to replace the asset as the date of valuation.

How is historical accounting better than alternatives? Standard costing Standard costing is an of import subject of cost accounting. Historical costs is only interested in cost allocations and not in the value of an asset. In addition effects of inflation may not be the same for all the companies in the market and historical cost accounts become almost unhelpful when comparing corporate performance.

The validity of historic accounting rests on the assumption that the currency in which transactions are recorded remains stable, i. Actual cost is the portion of most modern criterion bing system but they are limited value.

More accounting systems such as current cost accounting, exit price method, etc. If existent costs are less than criterion costs the discrepancy is favourable. In crude terms replacement costs may be defined as the estimated amount that would have to be paid in order to replace the asset as the date of valuation.

Standard costing and the related discrepancies is a valuable direction tool. Estimation has to be carried out after reviewing the asset, the market and if an identical asset is still being traded in the market.

In addition effects of inflation may not be the same for all the companies in the market and historical cost accounts become almost unhelpful when comparing corporate performance.

Advantages and Disadvantages of Hstorical Cost Accounting

Alternatively they are charged against sale grosss within the period in which are incurred. Closing stock of work in advancement or finished goods are value at the fringy variable production cost. The historical cost accounting convention 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.

If the plus is sold the addition or loss is recorded as the sum received for the plus less the historical cost cyberspace of any accrued depreciation. The fringy cost of plus usully consist of the fringy cost of production adjusted for stick motion plus the variable merchandising cost The most of import characteristic of fringy costing is the division of cost into those which are fringy variable those which are fixed.

Another main point with regards to inflation is rise in prices for an asset. Historical cost means what it cost the company for the item.

Irrespective of the method of employed determination doing implies a pick from a figure of alternate.

Historical cost means what it cost the company for the item. Rather than conveying the existent costs of direct stuff, direct labour, and fabricating operating expense to a merchandise, several makers allocate the expected or standard cost.Advantages and Disadvantages of Hstorical Cost Accounting Advantages and disadvantages of historical cost accounting, alternatives to historical cost accounting Introduction Accounting concepts and conventions as used in accountancy are the rules and guidelines by which the accountant lives.

Historical cost accounting Advantages and disadvantages

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. Free Essays Historical cost accounting Advantages and disadvantages.

Back Home. Historical cost accounting Advantages and disadvantages. Fiscal policy is to find hoe a concern is to be financed, whether by equity or penchant portion capital, and extent to which trust is to be placed upon long term or short term adoption.

Advantages and. Historical cost accounting Advantages and disadvantages. Print Reference this.

Published: 23rd March, Historical costing. Historical cost is the original monetary value of an economic item. Historical is based on the stable measuring unit's assumption Accounting Essay Writing Service Essays More Accounting Essays. Advantages and disadvantages of historical cost accounting, alternatives to historical cost accounting Introduction Accounting concepts and conventions as used in accountancy are the rules and guidelines by which the accountant lives/5(1).

Advantages and disadvantages of historical cost accounting, alternatives to historical cost accounting Introduction Accounting concepts and conventions as used in accountancy are the rules and guidelines by which the accountant lives.

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Advantages and disadvantages of historical cost accounting essay
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