Question 1 - 4 marks (750 words) </o:p> Identify and describe three (3) alternatives to Historical Cost Accounting (HCA). In your description, outline the underlying assumptions of each...

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Question 1 - 4 marks (750 words)

Identify and describe three (3) alternatives to Historical Cost Accounting (HCA). In your description, outline the underlying assumptions of each alternative and provide examples of how each method could be applied in practice. Critically evaluate whether any of these alternatives represent a viable alternative to historical cost accounting.

Question 2 - 4 marks (750 words)

Identify the main users of accounting referred to within the AASB/IASB conceptual framework. Does the identification of particular users within the conceptual framework have implications for the future of accounting measurement? In your response you will need to consider the implications of the identification of particular users on the use of fair values and historical cost accounting.

Question 3 - 4 marks (750 words)

a) Outline the advantages for accounting that could result from the development of conceptual frameworks.


b) Refer to the following journal article:

Hines, R (1989), "Financial accounting knowledge, conceptual framework projects and the social construction of the Accounting profession".Accounting, Auditing and Accountability Journal,2(2), pp. 72-92.

Who does Hines believe has the most to gain from the development of conceptual frameworks? Compare and contrast the views of Hines with the advantages you identified in part a)

Academic Writing and Referencing - 3 marks

Content assessed: Conceptual framework, measurement and normative theories.

Key generic skills: Research, critical thinking and written communication.

Answered Same DayApr 04, 2020ACC518Charles Sturt University

Solution

Abr Writing answered on Apr 05 2020
47 Votes
Assessment
Introduction
In the cu
ent assignment, we have discussed the alternative method of recording cost for historical cost accounting which is cu
ent purchasing power accounting, continuously contemporary accounting and cu
ent cost accounting. Further, we have discussed the main users of the accounting within the framework of IASB/AASB. At last the assignment outline the advantage of accounting from the development of the conceptual framework.
Answer 1
“Historical cost accounting”
The historical cost is the original cost at which items of the financial statement are recorded and the value should be retained throughout the accounting process to serve as the base of values in the financial statement. The cost recording method helps in distinguishing replacement cost, inflation-adjusted cost and the cu
ent cost of the original cost of the assets (Ellul, et. al., 2015). The method is based on the concept that the assets should be recorded at the price at which it is acquired. As per the requirement of the generally accepted accounting principle assets should be recorded in the financial statement at historical cost. The method doesn’t suit when the economy experience double digital inflation or rapid decrease in price, in that case, there is a number of alternative approaches to report financial statement. The company also can adopt another alternative method of recording cost which is as follows –
Cu
ent purchasing power accounting
The method restates financial statement of historical cost for change in purchasing power and the adjusted statement will state the original amount in relation to the existing purchasing power. The method requires keeping the record on the basis of convention historical cost and further requires presenting the supplementary statement as per the cu
ent purchasing power at the end of the accounting period. In this method, the items of the financial statement are adjusted on the basis of the general price index (Taplin, et. al., 2014). The method takes into consideration the change in the value of the money in accordance with the change in the price level. The methods are simple and can be taken as the first step towards the inflationary accounting.
The
oadest-based consumer price goods are used and the historical price is multiplied by the factor of conversion that is the ratio of price index at the date of conversion and index on the date of the transaction. The working of the CPPA method requires classifying the items of the balance sheet under non-monetary and monetary items.
Cu
ent cost accounting
The method follows the approach where the value of the assets are recorded at the present market value rather than stating at cost at which it was originally acquired. The method adjusts the historical cost for inflation in addition to the usual adjustment made. The cu
ent cost can be calculated by a variety of method including the multiplication of the value of the assets with the cu
ent price index. The method provides more accurate reporting of the financial position of the company and facilitates better alignment of the GAAP with the international accounting standard committee. The method is not feasible as it is impractical to determine the fair value for all assets and liability and the investor and analyst would have trouble in determining that the item is recorded at historical cost or cu
ent cost. Also, the change in the value flows to the income statement and leads to distortion in the profitability of the company (Dhaliwal, et. al., 2015). The interest in the cu
ent cost method is greater when the inflation is high and low in case of a decline in inflation. The method is more complex in comparison to the historical cost as it tends to create controversy over the adjustment which is appropriate.
Continuously contemporary accounting
The method measures the items of the balance sheet at the existing cash price thus the profit and loss can be found in the term of change in the value as all the items are measured in the similar way. The method is easy to use and continuously advice the firm on the assets necessary to sell and buy thus helps to survive in the competitive business environment (Curtis, et. al., 2015). The prediction and allocation are simpler under this method, unlike historical cost method where there is a greater rate of e
or and the method helps in estimating the amount which the firm would receive if sold its assets at the cu
ent date and this is the guide for the shareholder to assess the risk and benefit of the investment. The limitation of the method is that it demands a shift in the accounting practices from cost to price based system thus many of the business is avoiding the...
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