Discuss why the historical-cost accounting model may not provide decision-relevant information in an inflationary environment. MUST...

Discuss why the historical-cost accounting model may not provide decision-relevant information in an inflationary environment.

MUST BE ORIGINAL WRITING!!

Solutions

Expert Solution

Historic cost accounting basically refers to reporting cost of assets in the financial statements at the price at which they were acquired. It is based on the principle that only realised revenue must be reported in the income statement.In times of inflation, the value of money declines and thus the monetary unit shrinks in value as the prices rise.Historical cost accouting totally ignores this decline in value.In historical accounts, the incomes and expenditures and assets and liabilities has a mixture of values based on the dates at which each item was originally brought into the accounts.This creates serious problems in measuring and communicating results of a business Enterprise.HCA does not even match current revenue with current cost of operations as cost is a mix of historical and present costs. This distorts profitability and makes decision making difficult.The inflated profits under HCA might not be real profits and can be illusionary.

ekkarill92 answered 7 months ago

Next > < Previous

Related Solutions

Why is the analysis of historical accounting information relevant when we do valuations?

One objective of financial accounting is to provide relevant information for decision-making, including investment decisions by...

One objective of financial accounting is to provide relevant information for decision-making, including investment decisions by shareholders and potential shareholders. In this case, the balance sheet of LinkedIn showed a shareholders’ equity at September 30, 2016 that was much smaller than what Microsoft, after a bidding process, paid for that equity. Discuss whether you feel that the accounting process resulted in a misleading presentation of LinkedIn’s equity at September, 30, 2016. If you feel the accounting process could be improved,...

1.To be relevant in decision making, cost or revenue information must be future-oriented and differ between...

1.To be relevant in decision making, cost or revenue information must be future-oriented and differ between the alternatives. True False 2. Stephanie must decide between two alternatives for the weekend: babysitting or yard work. If she babysits, she will receive $40 and will incur $15 in food and snack costs. If she does yard work, she will receive $40 and will incur $3 in lawn mower gas and oil costs and $5 in snack costs. The amount of money she...

FAIR VALUE AND HISTORICAL COST ACCOUNTING - Discuss three challenges of historical cost measurement CONTROLLERSHIP -Discuss...

FAIR VALUE AND HISTORICAL COST ACCOUNTING - Discuss three challenges of historical cost measurement CONTROLLERSHIP -Discuss three major challenges facing controllers today -Discuss three ways in which controllership have changed in the past 100 years SOCIAL ROLE OF ACCOUNTANCY -Discuss three major social roles of accountancy ROLE OF GOVERNMENT IN STANDARD SETTING -Why do governments intervene in setting accounting standards instead of leaving it to the private sector?

Discuss why using financial accounting information for managerial decision-making may lead to distorted decisions. (Specific examples...

Discuss why using financial accounting information for managerial decision-making may lead to distorted decisions. (Specific examples need to be provided with 3 aspects)

Discuss why using financial accounting information for managerial decision-making may lead to distorted decisions (please use...

Discuss why using financial accounting information for managerial decision-making may lead to distorted decisions (please use specific examples to illustrate your points and limit your answer to 600 words or less)

Both managerial accounting and financial accounting provide useful information to decision makers.

Exercise 14-1 Sources of accounting information LO C1 Both managerial accounting and financial accounting provide useful information to decision makers. Indicate in the following table the primary source of information for each business decision. Primary Information Source Business Decision.Business DecisionPrimary Information Source1.Prepare budgets for the next year2.Estimate profits from a new service opportunity3.Prepare GAAP-based financial statements for external auditor4.Estimate product cost for a new line of shoes5.Determine whether to automate a production process6.Prepare financial reports according to GAAP7.Report financial performance to...

The goal of accounting is to provide useful information for decision. Therefore, financial accounting is governed...

The goal of accounting is to provide useful information for decision. Therefore, financial accounting is governed by concepts and rules knows as generally accepted accounting principles (GAAP). A) Explain that sentence showing the qualitative characteristics of useful information. B) The information needs of a specific user of financial accounting information depends upon the kinds of decisions that user makes. Identify the major users of accounting information and discuss what questions financial accounting information answers for each group of users.

“Relevant Cost and Irrelevant Cost concepts are very significant for decision making in organizations.” Discuss the...

“Relevant Cost and Irrelevant Cost concepts are very significant for decision making in organizations.” Discuss the statement What is Sunk Cost and is it necessary for decision making? What is meant by “make or buy” decision? Use an example to explain how “make or buy” decisions are made? Kindly type your response in order for me to copy and paste

What is a relevant cost? What makes information relevant to decision-making? What is differential analysis? What...

What is a relevant cost? What makes information relevant to decision-making? What is differential analysis? What is target pricing? Who uses it? What does target full product cost include? Relevant costs always determine which alternative should be chosen. Do you agree or disagree? Explain.

Subjects