What type of a theory is historical cost? How has it been derived? Do you see...

What type of a theory is historical cost? How has it been derived? Do you see any special benefits of historical cost accounting during this COVID 19 pandemic?

Expert Solution

The theory of historical cost is a kind of pragmatic theory that is derived from the behaviour commonly used by many accountants. Hence this theory is sort.pf an inductuve approach that is derived from practice of the mass number of accountants. There is no scope for placing logical arguments for accountants.

In the present condition caused due to the lockdown to mitigate the impact of the covid has affected most businesses adversely. Market Valuation of essential products have gone up due to the heavy demand resulting in unnatural inflation. Market value for other non-essential goods especially many assets have fallen due to uneven demand. Lockdown has also made some assets obsolete. The market value has become so unambiguous and uncertain to determine for accountants, as no proper information that can vouch the market price is available. Thus in this situation accountants find it convenient and easier to present such assets in historical cost as it is very simple and easier.

ekkarill92 answered 2 years ago

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