Advantages and disadvantages of historical cost accounting 3 / 4

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MC Question 9

Trasten Co operates in an emerging market with a fast-growing economy where prices increase frequently.

Which of the following statements are true when using historical cost accounting compared to current value
accounting in this type of market?

(1)

Capital employed which is calculated using historical costs is understated compared to current value capital employed

(2)

Historical cost profits are overstated in comparison to current value profits

(3)

Capital employed which is calculated using historical costs is overstated compared to current value capital employed

(4)

Historical cost profits are understated in comparison to current value profits

A     1 and 2
B     1 and 4
C     2 and 3
D     3 and 4

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Specimen
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MC Question 13

Which of the following criticisms does NOT apply to historical cost financial statements during a period of rising prices?

A

They are difficult to verify because transactions could have happened many years ago

B

They contain mixed values; some items are at current values and some are at out of date values

C

They understate assets and overstate profit

D

They overstate gearing in the statement of financial position

Reveal answer
Specimen
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MC Question 3

Which of the following criticisms does NOT apply to historical cost accounts during a period of rising prices?

A

They contain mixed values; some items are at current values, some at out of date values

B

They are difficult to verify as transactions could have happened many years ago

C

They understate assets and overstate profit

D

They overstate gearing in the statement of financial position

Reveal answer