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

If alisha maintenance manufacturing has: total maintenance, If Alisha Maint...

If Alisha Maintenance manufacturing has:  total maintenance cost of $2,785,000  total fixed maintenance cost of $310,000  total variable maintenance cost of $2,475,000  total m

Accounting conventions, Accounting conventions The phrase 'convention' ...

Accounting conventions The phrase 'convention' is used to signify customs or ethnicity as a guide to the research of accounting statements. A variety of accounting conventions

Example of adjustments for accrued items, Q. Example of Adjustments for acc...

Q. Example of Adjustments for accrued items? For instance assume Micro Train Company has some money in a savings account. On 2010 December 31 the cash on deposit has earned one

What is cyclic reporting, Q. What is Cyclic reporting? Cyclic reporting...

Q. What is Cyclic reporting? Cyclic reporting and the matching principle necessitate the preparation of adjusting entries. Adjusting entries are journal entries prepared at the

Sales taxes and schedule of accounts receivable, Sales taxes and Schedule...

Sales taxes and Schedule of accounts receivable Schedule of accounts receivable  Accounts Receivable and individual accounts should match. Only accounts which have

Accounting, briefly explain the accounting concepts which guide the account...

briefly explain the accounting concepts which guide the accountant at the recording stage

A company would not acquire treasury stock, Q. A company would not acquire ...

Q. A company would not acquire treasury stock a. in order to reissue shares to officers. b. as an asset investment. c. in order to increase trading of the company's stock. d. to ha

Ledger accounts in an accounting perspective, Q. Ledger accounts in An acco...

Q. Ledger accounts in An accounting perspective? The idea of the Internet dates to the 1960s when the military tied together several computers forming a network that allowed us

Adjusted trial balance sheet, If the amount in supplies expense is the janu...

If the amount in supplies expense is the january 31 adjusting entry and $650 of supplies waw purchased in january what was the balance in supplies on january 1

Difference between billable and non-billable expenses, Billable expenses ar...

Billable expenses are those expenses incurred by you on behalf of your client in performing duties / supply and service. These expenses are recoverable from your customer by way of

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