Question

What arguments can be given that the historical cost framework should be abandoned?

Answer 1

The purpose of preparing a balance sheet is that it gives a true picture about the present state of affairs of the business. It should reflect the true value of assets and liabilities rather than the historical costs of the same which have no relevance any more. Hence the market values of the assets and liabilities must be reflected to give the users of the financial statements the right picture about the state of affairs based on which they will make their decisions.