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'Historic cost accounting is the worst possible accounting convention, until one considers the alternatives.'
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| Submitted: Fri Jan 28 2005
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AF 301 Financial Accounting II Historical Costing Name: Shengheng Guan Student No.: M207952 14 December 2004 Table of Contents 1. INTRODUCTION ...................................................................... 3 2. THE LIMITATIONS OF HISRORICAL COST ACCOUNTING ............. 3 3. THE ALTERNATIVES UNDER CONSIDERATION 3.1 CURRENT PURCHASING POWER ACCOUNTING ......................... 4 'Historic cost accounting is the worst possible accounting convention, until one considers the alternatives.' 1. INTRODUCTION The most commonly encountered accounting convention is the "historical cost accounting". The creation of this accounting convention can be traced to the work of a Franciscan monk by the name of Pacioli in the year 1494. Historical cost accounting sets prices on the basis of original costs, where the cost of assets is measured by their depreciated historic cost. Therefore, no account is taken of changing prices in the economy under historical cost accounting. Over time, numerous other accounting theories have been developed by a number of well respected scholars and historical cost accounting has been criticised on the...
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