GENERAL KNOWLEDGE

THE CONCEPT WHICH STATES THAT ASSETS ARE NOT TO BE RECORDED AT THEIR CURRENT MARKET VALUE IS

  • A. money measurement
  • B. materiality
  • C. cost ✓
  • D. entity

 

The answer to the question is: C. cost

The concept which states that assets are not to be recorded at their current market value is the principle of cost. This principle is a fundamental accounting concept that dictates that assets should be recorded at their historical cost rather than their current market value. The rationale behind this principle is to provide a reliable and objective basis for financial reporting, as historical cost is considered more verifiable and less subjective than market value.

The principle of cost is based on the idea that the original cost of an asset is more objectively determinable than its current market value, which can fluctuate over time due to various factors such as supply and demand, economic conditions, and market speculation. By recording assets at their historical cost, financial statements reflect the actual amount paid for the asset at the time of acquisition, providing a more accurate representation of the company’s financial position.

This principle also promotes consistency in financial reporting, as it allows for comparability of financial information across different periods. If assets were to be recorded at their current market value, the values reported in financial statements would be subject to frequent changes, making it difficult to assess the financial performance and position of an entity over time.

The principle of cost is a cornerstone of accounting standards and is widely accepted and applied in financial reporting practices across various industries and jurisdictions. While there are alternative valuation methods such as fair value accounting, the principle of cost remains a fundamental concept in accounting theory and practice.

Leave a Reply

Your email address will not be published. Required fields are marked *