advantages and disadvantages of preparing notes receivable using fair value v hi

Accounting
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Discuss advantages and disadvantages of preparing notes receivable using fair value method v historical cost method.

Aug 21st, 2015

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  1. 5. ADVANTAGES OF HISTORICAL COST ACCOUNTING •Simple •More conventional method •More reliable and verifiable •Information is free from any bias views (GAAP) “Historical cost accounting leads to absolute certainty and it fits in perfectly with the cash flow statement. This is due to the fact that it tells exactly what has been paid or received and therefore there is no doubt about balance sheet amounts”
  2. 6. CONTINUED... •Helps businesses estimate their future costs with the help of original values that are recorded in financial statements of past years •No scope for manipulation because the data is supported by sufficient evidences such as: invoices and receipts
  3. 7. DISADVANTAGES OF HISTORICAL COST ACCOUNTING •Does not provide enough information that is relevant to investors •Historical cost is interested in cost distribution, not the actual values of the asset •Does not have any adjustments for inflation “an asset purchased at the current point of time may be more expensive in future due to inflation”

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Aug 21st, 2015

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