Question

A business reports its own office stationery on the balance sheet at its $400 cost, although...

A business reports its own office stationery on the balance sheet at its $400 cost, although it cannot be sold for more than $10 as scrap paper. Which accounting principle and/or assumption justifies this treatment?

Homework Answers

Answer #1

Cost principle and Going concern assumption.

Historical cost principle would say that the stationery shall be presented in the financial statements at the cost it was purchased, irrespective of the decline in its market value.

Going concern assumption assumes that the entity would carry on its normal business with not intention of winding up its activities in the near future.

So and going concern shall record the office stationery at its historical cost, since it will be used up in its course of ordinary activities.

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