valuing an asset is aimed at what principle, assumption or constraint?

Expert Solution

Before going forward to this question, you should know about the various basic principles, assumption and constraints in accounting.

Accounting Principles: Historical Cost, Revenue recognition, matching principle, disclosure, etc. Historical Cost: Financial statements report companies assets and liabilities at a historical cost. The conservative method. Revenue Recognition: Revenues must be recorded when earned and measurable in value. Matching Principle: Every debit has equal and opposite credit. Both revenue and expenses must be recosrded. Disclosure: Companies must disclose all the relevant financial information relevant to their stakeholders.

Accounting Assumption: Going concern, Different Entity. Going concern is the assumption that the business will go on and on forever. People may come and people may go but the business goes on forever. Different entity is the assumption which explains that business is a different legal entity apart from the people who manages it.

Accounting Constraints: Materiality, Consistency, Conservatism, etc. Materiality constraint: Incllusions and disclosure of all the economic transactions effecting the companies financials on the basis size and quantity of the transaction. Consistency: The company should be consistent in using the method they are applying to make their financials, for example if they are using straight line method type of depreciation then they should be consistent. Conservatism: The conservatism approach should be used while preparing the financials. Assets should not be over stated and liabilities should not be under stated.

By going through all of them we can see that Historical Cost principle is used in valuing of an asset.

ekkarill92 answered 1 year ago

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