Historical Accounting And Current Cost Accounting

Over the past years there have been many accounting measurement systems developed to replace or serve as a supplement to historical cost accounting. However it is not possible, at present, to state which system, if any, is likely to replace the historical cost system. Perhaps the most notable system is Continuously Contemporary Accounting (CoCoA), proposed by Australian researcher, Raymond Chambers. Chambers quoted “…that thousands of shareholders had lost millions of dollars on security investments made on the basis on out-of-date information or on fiction which were reported as facts” (Deegan, 2000, p.112).

Cost accounting is used by most companies whether manufacturing or service to keep track of their daily activities. It is essential in understanding the costs of running any enterprise. In other words they aid in determining the costs of inputs and outputs used in production. It involves analyzing and evaluating different approaches in order to determine the most suitable method that management can use suitably and one that can aid in future planning. Cost accounting is therefore an essential tool in decision making. Decisions made may involve pricing levels, future investment, production levels and coming up with a good competitive strategy. Different industries use different cost accounting method depending on the type of services provided or product manufactured.

Abstract: The choice between fair value and historical cost accounting is the subject of longstanding controversy among accounting academics and regulators. Nevertheless, the market based evidence on this subject is very limited. We study the choice of fair value versus historical

Historical record: One of the early objectives of historical cost accounting was stewardship. This meant that financial reports were a report on how well management had safeguarded the

Would factory security and assembly activities be best classified at an appliance manufacturing plant as unit-level, batch-level, product-level, or organization-sustaining?

In the past, historical cost measures were mainly used for reporting as they are reliable. However, historical cost is only relevant upon acquiring the asset and becomes irrelevant as time passes. On the other hand, fair value-based reporting, which accounts for changes in fair values, can produce balance sheet figures that provide a better reflection of the company’s value. This is also why accounting bodies are moving towards fair value accounting (FVA).

Costing system is the most important part for any business or engineering company. Cost accounting is necessary for a company to be able to exercise control over the actual costs incurred compared with planned expenditure. From the point of view of cost control, a costing system should not only be able to identify any costs that are running out of control but should also provide a tool that can assist in determining the action that is required to doing right things.

As is mentioned, fair value accounting and historical cost accounting are under heated discussion among scholars, concerning the issue of financial reporting and risk management. By definition, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. On the other hand, historical cost is a valuation method in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company. [1]

By providing a background of Measurements in general and these methods specifically, this Report afterwards

Fair value measurement had gained its hold decades ago in various western world. Relevant jurisdiction and accounting standards had authorized fair value as essential recognition of balance sheet and income [ WR LandsmanFair value accounting for financial instruments: some implications for bank regulation 2006, BIS working paper 209, University of North Corolina Kenan-Flagler Business school]. On 1st August 2008, the scenario behind accounting practices in Malaysia face a regulatory change with the introduction and adoption of FRS 139 “Financial Instruments: Recognition and Measurement” with effective date of 1st January 2010. This is deemed as the first step in recognizing fair value accounting as a reliable and updated practice or model.

Cost accounting is a process of recording, classifying, analyzing, summarizing allocating and evaluating various alternative courses of action and control of costs. Cost accounting involves the techniques for:

While all three costing method would work for a newly existing company in various areas, the actual costing method would be best for the first few years. The reason for this rationale, is that the company is new to the business environment and it would take some time for managers to acclimate their operations and production levels. As time passes, managers will have to change their strategy to the normal costing to avoid losing consumers to its competitors. Firms’ have to be able to reduce costs for their products and services, without losing the quality of the products (Apak, 2012).

Accounting is the collection and aggregation of information for decision makers including managers, investors, regulators, lenders, and the public. Accounting systems affect behavior and management and have affects across departments, organizations, and even countries. This paper will give the reader an understanding about cost accounting. This paper will discuss: Why is cost accounting so important to the success of the firm; what are the various methods of cost accounting and how are they used; how does an operating budget work to discipline a firm’s management; what are the elements of a budget; how are budgets constructed; what is variance analysis and how it is used.

II. Explain the need for, and operation of, different costing methods on the information given the above scenario.

Cost accounting can be defined as the method where all the expenditures used during execution of business activities are gathered, categorized, examined and noted down (Horngren & Srikant, 2000). The data collected is then reviewed to reach a selling price or identify where investments are possible. The principal aim of cost accounting is advising the top administration or the top management on the most suitable method of action based on the cost capability and efficiency. Cost accounting offers the comprehensive cost information that assist the business regulate the present business operations and also enabling in future business plan. Since managers are supposed to make resolutions for their own firms, there is no need for the data