Financial Reporting Lecture 1

Historical Cost AccountingBenefits of HCAstood test of practical applicationfamilar and generally understoodassists in control functionreadily documentedobjectiveeasily auditedless use of subjective estimatesless use of contingent events

Limitations of HCA backward looking mixed values in balance sheets matching out of date costs against current revenues failure to disclose P/L on monetary items doesnt cover all assets cannot compare between companies figures produced not useful for capital maintenance not suitable base for taxation lack of information required to value a business

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