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Accounting Measurement and Reporting

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10. Betsy McCall is the president of Brew News. She has no accounting background. McCall cannot understand why
Current cost is not used as the basis for accounting measurement and reporting. Explain what basis is used and
Why?

11. Describe the two constraints inherent in the presentation of accounting information.

12. In February 2008, Matt Osterhaus invested an additional $5,000 in his business, Osterhaus Pharmacy, which is organized as a corporation. Osterhaus' accountant, Kate Mulgrew, recorded this receipt as an increase in cash and revenues. Is this treatment appropriate? Why or why not?

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This solution provides answers to questions regarding accounting measurement and reporting.

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Answer 10:

All business organizations are assumed to continue operation for an infinite period unless there are specific indication that the going concern assumption will not stand valid. Also since the operating assets (Eg. property, plant and equipment) of the company are purchased to generate revenue and help in the operation of the company and not meant for resale, it will be logical to use "historical cost". Also all financial statements are prepared based on some concepts and conventions and one of them is "historical Cost". The concept does not allow use of current / replacement cost for accounting and disclosure of ...

Solution provided by:
Sonia Agarwal, CA
Education
  • Chartered Accountant (Equivalent to CPA in US), Institute of Charted Accountants of India
  • Bachelor of Commerce, West Bengal University
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