Historical/Current Cost?

[Acid]

Hi

Can you pls. explain me the following on GTG Studytext page A5.14.. Section 3.2




all assets and liabilities except for non current asset and inventory are already stated at current cost even under historical cost accounting




How come under historical cost accounting non current asset and inventory are stated at current cost?

Thanks

Acid

[Snehal P]

Hi Acid,

You have misunderstood the quote. The quote means:

The current costs and historical costs of all assets and liabilities except for non-current assets and inventory are more or less the same. Eg. the amount of receivables and payables remains the same under historical costs and current costs.

However, the current costs of non-current assets and inventory vary. When these assets are valued at current costs there are differences on revaluation.

Snehal

[Acid]

Hi Snehal ,

Thanks for your help. I m slightly confused as how come the amount of receivables and payables remains the same under historical costs and current costs ?

Thanks

Acid

[Geetanjali]

Hi Acid,

Re the above query,

Example:

You have bought goods on credit from Mr X on 1st Jan 2005 for an amount of $10,000, repayable after 2 yeras.

Hence, after 2 years you will pay an amount of $10,000 only to Mr X. You will neither pay less nor more to Mr X.


Now consider that you have purchased a piece of land for $15,000 in Jan 2005.

After 2 years if you have to sell this piece of land, either you will sell it at a higher price, or at a lower price depending upon the market factors. But not at the price at which you had purchased it 2 years before.

Hope this clears your doubts,

Regards
Geetanjali