Question

Question 1 - 4 marks (750 words) Identify and describe three (3) alternatives to Historical Cost Accounting (HCA). In your description, outline the underlying assumptions of each alternative and provide examples of how each method could be applied in practice. Critically evaluate whether any of these alternatives represent a viable alternative to historical cost accounting.

please i want the answer in detailed and in 750 words

Answer 1

Ans : Following are some of the accounting alternatives for Historical cost accounting.

1. Constant Purchasing Power Accounting: (CPPA) as defined in International Accounting Standard IAS 29 Financial Reporting in Hyperinflationary Economies is the International Accounting Standards Board´s inflation accounting model required to be implemented only during hyperinflation.

2. Constant ITEM Purchasing Power Accounting (CIPPA) is the IASB´s basic accounting alternative to traditional Historical Cost Accounting during low and high inflation and deflation. The stable measuring unit assumption is implemented under HCA. The stable measuring unit assumption is never implemented as a GAAP under CIPPA. HCA implements financial capital maintenance in nominal monetary units. CIPPA implements financial capital maintenance in units of constant purchasing power in terms of a daily index. CIPPA is fundamentally different from HCA. Financial capital maintenance in nominal monetary units is a fallacy because if is impossible to maintain the constant purchasing power (real value) of capital constant in nominal monetary units per se during inflation and deflation. CIPPA, on the other hand, automatically maintains the constant purchasing power of capital constant for an indefinite period of time in all entities that at least break even in real value at all levels of inflation and deflation - ceteris paribus.

3. Fair Value accounting: In accounting and in most Schools of economic thought, fair value is a rational and unbiased estimate of the potential market price of a good, service, or asset. It takes into account such objective factors as:

• acquisition/production/distribution costs, replacement costs, or costs of close substitutes
• actual utility at a given level of development of social productive capability
• supply vs. demand

and subjective factors such as

• risk characteristics
• cost of and return on capital
• individually perceived utilit