Original Alternative Methods Of Historical Cost Accounting

Historical cost accounts do not measure the loss of value of monetary assets as a result of inflation. So in case of high inflation, the assets could be mispricing and provoke disturbances in the analysts. The validity of historical-cost accounting is based on the assumption that the currency in which transactions are recorded remains stable, that is to say its purchasing power remains the same over a period of time.

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.

Cost accounting is a type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance (Cost Accounting, n.d.).

Historical cost is the most common adopted measurement basis in the IASB; FASB suggests that market selling price (Fair Value) is more accurate description of how much assets and liabilities are currently reflected in financial reporting (SFAC 5, 2008). In other words, it was about the historical cost versus fair value. Historical cost gives priority to existing shareholders and regard stewardship as an important function of financial reporting (Whittington, 2008). Historical cost records actual transaction with supporting documents so the financial report is less subject to manipulation by management (Shortridge et al., 2006). The information is relevant to forecasting future cash flows within entity specific perspective rather than direct valuation of future cash flows. Historical cost accounting may lack relevance as during period of inflation (Pozen, 2009). The fact that relevant information has predictive value strengthens its decision making power over reliability principle (KAYA,

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

| |Within the relevant range, if there is a change in the level of the cost driver, then: | | | |

The discussion takes place within the context of different bases of valuation—cash basis, historical cost, and current value. This discussion also helps the instructor to learn more about the students’ background and ability. Historical cost accounting is presented as a compromise between cash accounting (high reliability but low relevance) and current value accounting (low reliability but high relevance). The matching problem of historical cost accounting is illustrated, with specific reference to amortization and full cost v. successful efforts accounting in oil and gas.

Sub Micron Devices started its operations in mind 1980s. The company was located in Phoenix, Arizona, and had 400

Through the case study, I learnt that a proper Cost Accounting System is very important in a company. Without the accurate system, a company is unable to maximize the profit from the product sold. The product price might be charged too high (over-priced) or too low (under-priced). All these will

The article ‘Market Valuation of Accrual Components’ by Rick Francis tries to focus on the numerous aspects of capital market research to enlighten the knowledge of cash flows and accruals for maintaining equity valuation. In financial accounting theory, this issue has been found as controversial as well as unsettled. However, the main objective of this paper is to know the empirical evidence which helps to understand the market condition, market price and the cash flow of accruals. In this regard Francis ran multiple studies and then he comes up with the idea of evaluating cash flows and accruals components which are very helpful for providing information to the investors before they invest in equity securities. The article also provides some basic concept to the Financial Accounting Standards Board (FASB) regarding the issues of utility on accounting information by focusing equity investors as well as the perception of accrual elements of earnings. The paper supports the preliminary hypothesis which is that valuation for other current accruals is not greater than the receivable accrual. Furthermore, the outcomes of this paper are founded relevant with investor findings gains and losses which are associated with the equity valuation. The outcomes also suggest that valuations for accruals are greater in the market valuation for the cash flow. Not only the receivable accruals but also the other operating accruals are valuable for the investor to

Sales: External (1,200,000 x $4) Internal (800,000 x $4) Cost of goods sold: Variable (2,000,000 x $1.74) Fixed (2,000,000 x $0.40) Operating income Sales: External (1,200,000 x $4) Internal (800,000 x $2.14) Cost of goods sold: Variable (2,000,000 x $1.74) Fixed (2,000,000 x $0.40) Operating income

All companies that have operation compulsory need to adopt accounting to calculate the profit and expenses. However, there are some methods for accounting and usually a firm will find the most suitable accounting to adopt it. One of the common accounting methods is just in time (JIT) method. Those companies who adopt this method will expect to gain advantage form it. Unfortunately, by implementing just-in-time accounting, there will be some disadvantage for this accounting method too.

The article ‘Market Valuation of Accrual Components’ by Rick Francis tries to focus on the numerous aspects of capital market research in terms of financial accounting to enlighten the theme knowledge of the performance of cash flows and accruals for maintaining equity valuation. To know the empirical evidences which help to understand the market condition, market price and the cash flow of accruals is the main objective of this paper. In his journal he suggested the analysis of financial calculation will find the study easy because of evaluation accrual elements as well as cash flows before represents some recommendations for equity securities. The study also provide some basic concept to the financial accounting standards Board (FASB) regarding the issues of utility on accounting information by focusing equity investors as well as perception of accrual elements of earnings. The record of this paper support preliminary hypothesis which is valuation for other current accruals is not greater than the receivable accrual. Furthermore, the outcomes of this paper are founded relevant with investor findings gains and losses which are associated to the equity valuation. In some point to run the study the author found that cross sectional and temporal issues for measuring accruals components are problematic for the both primary and secondary and this may constrain in this article which may cause for identifying the null hypothesis incorrectly. The outcomes also suggest that

The one of the advantages is the historical cost can be verified. The cost of purchases at date of acquisition is documented with contracts, invoices and payments. It is useful in matching the changes in profits or expenses relating to the asset purchased, as well as determining the past opportunity costs. With historical cost accounting, managers have the resources to forecast the future operational costs. On the other hand, FASB has decided to use the historical cost principle because it is reliable and objective. It is also easy to use and understand. The disadvantages of historical cost accounting include that it does not evaluate the current market value. It does not really tell the financial users how much the assets are currently worth. Furthermore, historical cost accounting does not record the opportunity cost of using the old assets. It does not record the loss in real value of assets as a result of inflation or the gain in real value of assets as a result of deflation. It is claimed that it is not useful for financial information users to compare the corporate’s performance over time. Lastly, the financial information in historical cost concept presents an old interest rate and outdated

Cost accounting, as a tool of management, provides management with detailed records of the costs relating to products, operations or functions. Cost accounting refers to the process of determining and accumulating the cost of some particular product or activity. It also covers classification, analysis and interpretation of costs. The cost so determined and accumulated may be the estimated future costs for planning purposes, or actual (historical) costs for evaluating performance. The Institute of Cost and Management Accountant (ICMA), London, defined cost accounting as “the process of accounting for cost from the point at which expenditure incurred or committed to the establishment of its