Question

detailed information.

Scenario

Recent pronouncements of the FASB indicate that the FASB is moving away from historical cost accounting toward the use of current or fair value. In your graded discussion, you are expected to present arguments either for or against the statement “that historical cost is more relevant than the current value”. You must support your position with references to the conceptual framework and to concepts of capital maintenance where appropriate.

Answer 1

The Historical cost accounting approach for recording assets and liabilities has been used traditionally for centuries in bookkeeping. Through this approach, assets are recorded at their purchase price in the balance sheet and adjustments made for depreciation or revaluations etc. However, over the past few decades there has been a gradual move to using fair or current value approach to accounting for assets, as under the IFRS, fair values are most frequently used for financial assets and liabilities. Through this approach, assets and liabilities are recorded at their current market values.