Question

a) Explain what historic cost and going concern basis means

b) how does each basis influences you in analyzing the financial statements ( 4 marks)

nb. Seperate a and b

Answer 1

A) HISTORIC COST CONCEPT-THE TRANSACTIONS ARE RECORDED IN THE BOOKS OF ACCOUNT AT THEIR COST OF THE BUSINESS.

ACCORDING TO GOING CONCERN BASIS, IT IS TAKEN THAT THEBUSINESS WILL CONTINUE FOR A FORSEEABLE FUTURE AND THERE IS NO INTENSION TO CLOSE DOWN THE BUSINESS.

B) HISTORIC BASIS HAS THE ADVANTAGE OF BRINGING OBJECTIVITY INTO ACCOUNTS.THE INFORMATION GIVEN IN ACCOUNTS OR FINANCIAL STATEMENTS ARE NOT INFLUENCED BY PERSONAL BIAS OR JUDGEMENT.

GOING CONCERN BASIS HELPS DIFFERENTIATE BETWEEN CAPITAL AND REVENUE EXPENDITURE WHILE ANALYSING THE FINANCIAL STATEMENTS. ALSO THE ASSETS ARE RECORDED AT COST AND DEPRECIATED FOR ITS USEFUL LIFE.