Reasonable accuracy, Accounting Basics

Assignment Help:

Some the other concepts, as for example: the Matching concept, the Dual Aspect concept and the Realization concept are discussed in further sections, and as they have not been taken up currently.

Whereas going by all these concepts, possibly you may have developed a feeling about them sometimes conflict along with each other. You are correct. We illustrate this through considering several of these concepts in the context of valuation of business properties. Assume a firm needed a piece of land in 1985 for a price of Rs. 6, 00,000. Factory premises were constructed in the year 1986, and operations commenced in the year 1987. The firm has been successful in attaining the desired profit for the previous year. The Balance Sheet as a statement of assets and liabilities for the year 2005 is being arranged and 'Land' is needed to be valued. The estimated recent market price of this land is Rs. 60,00,000.

Must you recommend such the land be valued on Rs. 60 lakhs? The answer is 'no', clearly. Land would be continued on the Balance Sheet at its original cost is Rs. 6,00,000 merely. This decision is supported through several of the concepts discussed in this topic. In the first put, the stability of purchasing power of money shown in the money measurement concept prevents us by recognizing accretion in values as an outcome of changing price levels. After that, the realization concept will not permit unrealized profits to be involved providing land is held through the company and not sold away. You may notice the continuity or going concern concept creates any possible market value of land irrelevant for the balance sheet since the firm has to continue in business and land will be required by it for its own use. In such connection, this could be argued that if land were demonstrated on the balance sheet at its estimated current market value, the owner might choose to discontinue the business, sell the land and leave. The principle of objectivity is here initiated in the argument. This can be easily seen as in a situation like this the cost of acquisition of land at Rs. 6,00,000 in the year 1985 is the objective fact as it is depends on a transaction that in fact took place and this objective evidence is able of being verified. In contrast, the estimation of current market value figure might be suspect. This raises many questions. Do you comprise a market quotation for an equal plot of land? Has a similar plot of land been sold currently, and can we pick it up as demonstrable evidence of the current market price? This may be implies as even if market price for an equal plot of land is not obtainable, estimates via an accredited value may be accepted like demonstrable evidence of the market price. Further complications may be observed if buildings and services have been erected upon the plot of land. Is this possible to evaluate the value of land without factory buildings and the other facilities constructed on it? The answer is clearly 'no', and the conservatism concept will then put off you from accepting an estimate of market value as it cannot be ascertained along with reasonable accuracy.


Related Discussions:- Reasonable accuracy

#title.suspense account, The book of Deven Verma could not be tallied. The ...

The book of Deven Verma could not be tallied. The account transferred the difference of Rs. 1.270 in the suspense account on the debit side. the following mistakes were found later

The classified balance sheet, Dunmore Coal and Iron purchased $1,000,000 in...

Dunmore Coal and Iron purchased $1,000,000 in corporate bonds and 500,000 shares of common stock in its competitor, Olyphant Iron. Dunmore plans to hold onto the bonds until the ma

What is accumulated depreciation, Q. What is Accumulated depreciation? ...

Q. What is Accumulated depreciation? Accumulated depreciation is a contra asset account to depreciable assets such like machinery, buildings and equipment. This account illustr

TURNOVER, WHAT IS THE MEANING OF INVENTORY TURNOVER

WHAT IS THE MEANING OF INVENTORY TURNOVER

Modifying conventions on materiality, Q. Modifying conventions on Materiali...

Q. Modifying conventions on Materiality? The Materiality is a modifying convention that permits accountants to deal with immaterial (unimportant) items in an expedient however

Classify the following items as, Classify the following items as (a) defer...

Classify the following items as (a) deferred expense (prepaid expense), (b) deferred revenue (unearned revenue), (c) accrued expense (accrued liability), or (d) accrued reven

Explain what is brs?, BRS - Bank Reconciliation Statement A bank recon...

BRS - Bank Reconciliation Statement A bank reconciliation statement is a declaration organized by organizations to reconcile the balance of cash at bank in a company's own rec

Advance accounting, hi my name is harpreet kaur. I need help for my assignm...

hi my name is harpreet kaur. I need help for my assignment, how can I contact you? and how much time take to make one assignment?

Which of the following is not one of the key requirements, Which of the fol...

Which of the following is NOT one of the key requirements for auditor independence? A. Auditors must disclose all other written communications between management and themselv

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd