However the exception to this rule is impairment that may arise due to depreciation of assets. For example a plot of land is acquir by a business for a certain price and therefore is record as an asset in the books at that cost. Next suppose land prices rise for example double the original price in two years. In the example above if the cost concept is adopt then the companys balance sheet will always show only the acquisition cost and not the present value or current value of the land.
Since every end user
Wants to know the value of a Korea WhatsApp Number Data companys assets it is reasonable to state that if the present value of assets is not shown in the balance sheet then the primary purpose of communicating a companys value will fail. Also read Variable Cost Ratio Definition How to Calculate and Examples Cost Concepts and Relevance Conventions cost concept in accounting It is important to ask why the cost concept is still adopt in todays accounting processes especially considering that the concept appears to be inconsistent with relevance conventionse.
Because present value
Relevant to most end users. There Italy Phone Number List are several reasons for this. Of course the main problem is that most people cannot agree on the present value of an asset even though the price paid as the cost of the asset is not debatable in most cases. Therefore recording assets at cost meets the objectivity convention. In addition the current value of an asset is always changing meaning that if we want to record an asset bas on its current value then the asset nes to be updat practically every day. This will cause instability in the account greatly rucing its effectiveness and acceptability. of regularly recording and updating asset values are timeconsuming and expensive.
