Warren Buffett Leadership Style

Decent Essays
Cost Concept
According to this concept the asset is recorded in the books of accounts at the price paid for it and not at its market value. For example: if a business entity purchases a building valued at $15 million from a friend for $12 million, this asset would be recorded at $12 million and not at $ 15 million, because for the business entity the cost was $12 million and not $15 million.
Now the basis for all future transactions relating to this building would also be at its cost, i.e. $12 million. For example: The depreciation would be charged on $12 million and not on $15 million. Similarly when the asset is sold in future, the profit or loss on sale would be based on the cost price actually paid for it. Since the original or
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Limitations of Cost Concept
The limitations or drawbacks of this principle are as follows:-
1. The items which do not have any cost are ignored. Thus the knowledge and technical skill built inside the enterprise, a favorable location, brand name and reputation of the business as time goes would find no place in the assets of the business entity.
2. The money-measurement assumption which assumes that purchasing power of rupee is stable is a major limitation of the cost concept.
3. The actual information needed by the management, investors, creditors etc. may be current values of assets therefore values based upon historical cost may not be useful for their purposes. Concept of Cost
Cost accounting is concerned with cost and therefore is necessary to understand the meaning of term cost in a proper perspective.
In general, cost means the amount of expenditure (actual or notional) incurred on, or attributable to a given thing.
However, the term cost cannot be exactly defined. Its interpretation depends upon the following factors: • The nature of business or industry • The context in which it is used
In a business where selling and distribution expenses are quite nominal the cost of an article may be calculated without considering the
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