U.S. accounting standards at one time contained a requirement that certain large

Question

U.S. accounting standards at one time contained a requirement that certain large companies disclose current values for inventories and fixed assets. Such disclosure included dollar amounts for cost of goods sold and depreciation that were based on current instead of historical cost. This requirement, however, was quickly abandoned in response to heated controversy. A. Build an arguement requiring current values on the balance sheet. B. Consider the usefulness of historical costs for decision-making purposes, and build a case for requiring current values on the balance sheet. C. Which of the two arguements do you find most convincing?

Explanation / Answer

Build an arguement requiring current values on the balance sheet

The current  value should mentioned in the balance sheet as it presents what is the exact position of assets and liabilities as on that particular day .Its impact on the balance sheet and income statement is high due the possible fluctuation in this method but the picture given by the balance sheet including the fluctuations is what the investors need . It provides with more current financial information and visibility .

Consider the usefulness of historical costs for decision-making purposes, and build a case for requiring current values on the balance sheet.

Historical price is the price of the assets and liabilities at time of their first transaction . Basis the historical costs the company knows how long will the asset last, was is its current value, what is the deprecation on it, should the asset be retained or discarded at present ?How much liability is still owes ? How long the liability will still be there , whether any changes to be done in the current liability

Which of the two arguments do you find most convincing?

Neither of the two is better as if it is not put into implementation properly it can result in incorrect information and give rise to potential risks and market distortion

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