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Two advantages and two limitations of using historical cost

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Reference no: EM131181062

Historical cost accounting is the traditional valuation approach within both U.S. and international accounting. However, it is often criticized for its failure to provide relevant information for investors, lenders and the creditors. From the alternative valuation techniques in the Fred's pineapple store exercise,

a.Explain two advantages and two limitations of using historical cost for

i.the accounting valuation of assets; and

ii.the measurement of periodic income.

b.Briefly discuss whether the use of historic cost accounting for assets should be entirely abandoned under U.S. GAAP and replaced with a DCF discounted cash flow (DCF) based valuation system. In your answer, clearly identify the comparative strengths and weaknesses of historical cost and DCF accounting.

Reference no: EM131181062

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