Advantages and disadvantages of historical cost accounting 3 / 4

Advantages of Historical Cost Accounting

Advantages

  1. Cost is known and can be checked to an invoice

  2. Enhances comparability

  3. Leads to stable, non-volatile pricing

Disadvantages of Historical Cost Accounting

Disadvantage

  1. Non-current asset values become quickly out of date

  2. Depreciation charge is unrealistically low

  3. Lower costs lead to higher profits - which may lead to too high dividends in real terms

  4. Comparisons over time are impossible

  5. Users are often interested in current values not past e.g. security on loan