Wahid’s evaluation the use of historical cost and non-current asset valuation

  • 243 views
Uploaded on

 

More in: Business , Technology
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
243
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
3
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. WAHID’S EVALUATION - THE USE OF HISTORICAL COST AND NON-CURRENT ASSET VALUATION The asset is included in a class of non-current assets considered on the fair value basis, the asset need not be revalued pending the class of non-current assets is next revalued. If the transferred asset is in a category of assets, which are esteemed at historic cost, the pre-transfer assessment becomes the historic cost. Introduction: In preparing reports, at present guided by the historical cost principle. This principle states that non-current assets should be valued at the cost at which the asset was acquired. This cost includes costs involved in getting the asset ready for use. For case in point - if you were to buy a dryer Machine for your washing plant at a cost of (USD) $10,000 it may also cost you a further $ 1500 to have the dryer Machine installed the depreciable cost of the dryer Machine becomes $11,500 What Does Historical Cost Mean? A assess of value used in accounting in which the cost of an asset on the balance sheet is based on its nominal or original cost when acquired by the company. The historical-cost system is used for assets, under generally accepted accounting principals (GAAP). Although Historical cost accounting is an approach to accounting using asset values based on the real amount on currency paid for assets with no increase amendment. This approach is said to use the accounting principle of historical cost. It contrasts with approaches such as current cost accounting. In addition, although recent accounting standards are largely based on historical cost accounting, there are exceptions such as the use of reasonable value, net feasible value, and other revaluations Current and non-current assets: The assets of a business are physical property owned and used by the business and are listed on the balance sheet to reproduce the value. Assets are classified into two major groups: 01. Current assets (consisting primarily of cash, accounts receivable and inventory) 02. Non-current assets (sometimes referred to as fixed assets) consisting of land, buildings, plant and machinery, tools and dies, motor vehicles, computer equipment Current assets: Current assets are estimated or able to be renewed into cash within a normal trading cycle of one year. Since such assets are unspecified to be relatively short-term items, they are normally reserved for or committed to short term use. Non-current assets: The non-current asset section of the balance sheet represents a list of the long term or more permanent assets used in the business. These include investments in land, buildings, equipment and vehicles. Valuation of assets:
  • 2. Basically the net value of a business is the variation between what it owns and what it owes. That is, deduct the total liabilities from the total assets to verify the business net value. This form can then be used to evaluate the return on funds invested in the business and thus verify effectiveness. The process of assessment can have a major bearing on the estimate of net worth. by tradition, non-current assets are valued at the lower of either historical cost or market value which can gladly be strong-minded for some curriculum of property. Historical cost and non-current asset valuation The advantage of using historical cost is that it is based on objective evidence rather than subjective opinion. However, the problem with some non-current assets such as property is that they usually increase in value over a number of years. In accounting - it is familiar understanding that different methods of arriving at a result or outcome exist. Asset valuation, which is critical in financial accounting, is not always uncomplicated. Asset values change yearly, due to depreciation and appreciation, and the nature of assets make asset valuation methods major. Four basic methods of valuation of assets in financial statement include: (I) Historical cost (II) Replacement cost (III) Net realizable value (IV) Economic value Historical cost is the most common valuation of assets in financial statements. This is because historical cost is provable and known. As its name suggests, historical cost recorded cost of an asset when the cost was incurred. In other words, the amount that an entity pays for an asset represents the historical cost. If, for case in point, you purchased an item for $10,000.00, then it would be valued at its cost. Although financial accountants find "costs" a more objective index than asset values, asset valuations are important for fairly presenting the position of a business. The use of historical cost can be difficult in periods of high price rises. It can guide to the arrangement of the business not being practically presented if the asset has a lower assessment than its current cost. This is because historical cost does not identify unrealized investment gains of a non-current asset. The historical cost principle is usually used, except for where it conflicts with other essential accounting concepts, such as carefulness. This in sequence may significantly involve decision making in the business. The business may now reflect on selling the property and conclusion the business, renting somewhere else or in search of a more gainful movement. The assessment to reproduce more current values for non-current assets is a phase of current cost accounting. Using this come up to the business attempts to show the non-current asset at current or substitute values. Depreciation is the decline in the prospect economic benefits of a depreciable non-current asset during carry and split and obsolescence. It is a share process. It can be considered by two main methods, each dazzling in a different vision in the way the asset is used. Depreciation is to be treated as an estimated expense that does not set aside cash for the
  • 3. replacement of a non-current asset. In determining the cost of achievement of the Machine, any capital costs made must be added to the buy price of the lathes. This amount will be considered as the historical cost and will be used in cunning the depreciation expense Depreciation is the allocation of the cost of a non-current asset less its estimated disposal value against returns over the property useful life. A depreciable asset is an asset that will be used over more than one accounting period and will steadily make a payment to returns over its useful life. Though, it will give rise to future expenses as their future economic benefits are used up or expired. This has certain ramifications. Depreciation also has to be adjusted to allow for changes in current values. This brings into question the purpose of depreciation itself. Is it intended to allocate the cost of the asset over the life of the asset? This is the definition currently used. If the depreciation is based on current or replacement values then this suggests the purpose is to provide for the replacement of the asset. This is a purpose not currently met. What happens if you do not intend to replace the asset or if you do, with a more expensive asset? Conclusion: Assessment of presentation becomes more complex if the base against which profit is exact continuously changes. Is the improvement in presentation due to improved profit or reduced asset valuation? The use of ratios, as assess of presentation, loses its value with these changes and a careful assessment of real reports becomes vital. Summary: The Assets exact at historic cost should not at all be revalued upwards, even if they retain some service potential after being depreciated to nil value to calculate the cost of the acquirement of the machine, the investment expenditures that are made, need to be added to the purchase price of the machine. These expenditures may include importing the machine into the country, installation expenses and any other costs that occur which will contribute to the future economic benefit of the business for more than one accounting period