Continuity Assumption

Jun 2nd, 2015
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Louisiana State University - Shreveport
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Historical cost principle • Assets and liabilities are recorded at their actual historical cost. When an asset is written off, the loss is recorded as the historical cost of the asset less any accumulated depreciation. • Land and building with respective appraised values of $60,000 and $180,000 were purchased for $55,000 and $160,000. Both assets will be recorded at the respective costs of $55,000 and $160,000. • If a company uses current market value to report the value of its assets on the balance sheet, the company would be violating which principle?

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Continuity AssumptionThere is an assumption that the life of an entity will be long enough to fulfill its financial and legal obligations. Any evidence to the contrary must be reported in the financial statements of an entityHistorical cost principleAssets and liabilities are recorded at their actual historical cost. When an asset is written off, the loss is recorded as the historical cost of the asset less any accumulated depreciation.Land and building with respective appraised values of $60,000 and $180,000 were purchased for $55,000 and $160,000. Both assets will be recorded at the respective costs of $55,000 and $160,000.If a company uses current market value to report the value of its assets on the balance sheet, the company would be violating which principle?Objectivity principleAccounting records must be designed and kept on objective rather than subjective evidence. Underlying verifiability must exist for the information contained in the financials.The historical cost must be verifiable through legitimate proof of purchase states that a company's financial information be based on verifiable data.Ie. Kimberly Fisher purchases equipment for Cola Company and

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