Historical cost accounting would suggest that items included in reports prepared by accountants should be supported...

Historical cost accounting would suggest that items included in reports prepared by accountants should be supported by contracts and be capable of measurement in dollars. If accountants are to prepare Integrated Reports do you believe this ‘traditional’ view would be able to be implemented? Discuss in the context of measurement. Provide examples.

Expert Solution

Historical Cost Accounting:- Historical Cost accounting is a method used in accounting for measuring the value of the asset based on the original cost at which such asset had been acquired. Such value is derived by using the contracts entered into by the company and other supporting documents such as invoices for acquiring such asset.

Accounting under Intergated Reports:- Intergrated report focuses on the value that has been created by the entity over a period of time. To fulfill the basic idea of presenting the actual value that has been added by the entity over the period of time, it is of utmost importance that the assets should be valued at their current cost.

Conclusion:- Accordingly, integrated report would be more likely to consider Current Cost accounting to present the Fair Value of the assets today. Hence, traditional view would not be able to be implemented in the integrated reports.

Example:- An asset purchased 2 years back for $100000 depreciable in 5 years. Suppose current market value (Fair Value of such asset is $70000). Now, as per historical cost accounting Value of asset would be $60000, i.e. Purchased cost less depreciation of 2 years. But as per intergrated report, the value of asset to be shown must be Rs $70000, i.e. the Fair Market Value or current cost of the asset.

ekkarill92 answered 1 year ago

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