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Historical Cost Concept or the Cost Principle

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It means that assets are usually shown at cost monetary value, and that this is the footing for rating of the assets.

Accountants calculate the value of an plus by mention to the cost of acquisition, and non by mention to the value of the returns which are expected to be realized.

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The historical cost convention holds that the value of assets shown on the balance sheet should be based on their acquisition cost ( that is, historic cost ) .This method of mensurating assets value takes penchant over other methods based on some signifier of current value.

Money Measurement Concept ( or Monetary Principle )

Accounting information has traditionally been concerned merely with those facts covered by ( a ) and ( B ) which follow:

It can be measured in pecuniary units, and

Most people will hold to the pecuniary value of the dealing

( Frank Wood and Alan Sangster 2008 )

Its function as a common denominator, by which the value of assets of different sorts could be compared, encouraged the extension of trade.

( M W E Glautier and B Underdown 1997 )

There have been occasional efforts to mensurate and describe resources of a concern that are usually excluced from the balance sheet so as to supply a more complete image of its fiscal place.

( Eddie McLaney and Peter Atrill 2008 )

The concern Entity Concept ( or Accounting Entity Assumption/ Concept )

The concern entity construct implies that the personal businesss of a concern are to be treated as being quite separate from the non-business activities of its proprietor ( s ) .

No affair what activities te owner ( s ) acquire up to outside the concern, they are wholly disregarded in the books kept by the concern.

( Frank Wood and Alan Sangster 2008 )

This principal remains enshrined in modern fiscal accounting, and the proprietor is shown as entitled to both the ‘capital ‘ which s/he has invested in the concern, and besides the net incomes which have been made during the twelvemonth.

( M W E Glautier and B Underdown 1997 )

The concern entity construct must be distinguished from the legal place that may be between concern and their proprietors.For exclusive proprietaries and partnerships, the jurisprudence does non do any differentiation between the concern and its proprietor ( s ) . For limited companies, on the other manus, there is a clear legal differentiation between the concern and its proprietors.

( Eddie McLaney and Peter Atrill 2008 )

The clip Interval Concept ( or Accounting Entity Assumption/principle )

One of the implicit in rules of accounting, the clip interval construct, is that fiscal statements are prepared at regular intervals of one year.Companies which publish further fiscal statements between their one-year 1s describe the others as ‘interim statements ‘ .

( Frank Wood and Alan Sangster 2008 )

The usage of doing periodic studies to the proprietor of a concern day of the months from the clip when wealth work forces employed retainers to pull off and supervise their personal businesss. Periodic accounting has its beginning in the ideal of control, and company jurisprudence sees the function of fiscal studies as being basically the communicating of information from the directors of the concern, that is the managers, to the proprietors of the concern, that is the stockholders.

( M W E Glautier and B Underdown 1997 )

By and large, the life of a concern is assumed to cover a long period of clip and for accounting intents it is divided into units of equal length.

( Andrew Leong Fook Chee and Wong Sei Van 2005 )

Traveling Concern Assumption

It is assumed that the concern will go on to run for at least 12 months after the terminal of the coverage period.

( Frank Wood and Alan Sangster 2008 )

The rating of assets used in a concern is based on the premise that the concern is a go oning one, non on the brink of surcease.This construct is of import: many assets derive their value from their employment in the house, and should the house cease to run the value which could be obtained for these assets on a closing-down sale would be much less likely than their book value.

( M W E Glautier and B Underdown 1997 )

The traveling concern holds that the fiscal statements should be prepared on he premise that the concern will go on operations for the foreseable hereafter, unless this is known non to be true sheet.

( Eddie McLaney and Peter Atrill 2008 )

Undertaking 2

The Difinition and Explanation

Historical Cost Concept

The dealing recorded based on the cost monetary value of stock list on the day of the month purchased.The cost recorded is eternity although the value of the assets change.

Example, the vehicle that purchased by Salon Sally cost $ 80000 had recorded althought the value of vehicle in market lessening to $ 50000.

Money Measurement Concept

The money measuring must be usage in the same currency. Example, Company ACE have to enter the dealing in the same currency like RM into every history.

The Business Entity Concept

This construct means that there are separate entity between concern and the proprietor. Example, the proprietor of D Enterprise invests $ 20000 to another C Enterprise concern, so proprietor of D Enterprise can non enter the dealing in the history cause is non for concern intents.

The clip Interval Concept

The dealing record and roll up based on the unit of clip. Example, the clip period for Company T at every 6 months, after 6 months, Company T will roll up all the accounting informations to make a fiscal studies.

Traveling Concern Assumption

Business is predicted to be every bit usual in close future.Example, John invests another $ 20000 into his concern so that the concern could maintain operate to the following twelvemonth.

Undertaking 3 ( I )

Assetss

=

Owner ‘s

Liabilitiess + Equity

Cash

at Histories

Bank + Receivable + Supplies + Land

=

Monica

Histories Bass,

+

Collectible Capital

Bal.

2250 1500 12000

8000 7750

a )

20000

20000

B )

700

700

degree Celsiuss )

-8000

-8000

vitamin D )

1000

1000

vitamin E )

1000 -1000

degree Fahrenheit )

1000

1000

g )

2400

2400

H )

-1000

-1000

I )

150 -150

J )

-2000

-2000

14100 2900 850 12000

1000 28850

Entire

29850

29850

Undertaking 3 ( two )

The entire stoping balance of: –

Asset = 14100+2900+850+12000 = 29850

Liability =1000

Owner ‘s Equity = 28850

Cite this Historical Cost Concept or the Cost Principle

Historical Cost Concept or the Cost Principle. (2016, Nov 24). Retrieved from https://graduateway.com/historical-cost-concept-or-the-cost-principle/

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