英语论文网

Furthermore, historical cost is useful for control purposes as the stewardship of management is seems involved in the objective of accounting (Bakar & Said, 2007). Historical cost is recorded based on actual transactions, thus the figures recorded are reliable. Managers can refer to the income statement to determine how effective a management has met its responsibilities and its level of performance (Bakar & Said, 2007).

However, historical cost also has several limitations. Historical cost which mainly consider the acquisition cost of an asset ignores the fact that managers are not only interested in the cost allocations and how much have been earned. A manager also interested in increases and decreases of the value of their investments in current market (Bakar & Said, 2007). Hence, it provides insufficient information for the evaluation of business decision.

Furthermore, historical cost is sometimes misleading as it flaws in times of inflation (Thompson, 2007). The validity of historical cost failed to guarantee the quality of justice when the transaction-oriented accountants were more interested in checking past data rather than current physical reality (Bakar & Said, 2007). In addition, the effect of inflation may not be the same for every organization and causing historical cost concept mislead when it is used to compare corporate performance (Thompson, 2007).

Undeniably, current cost accounting concept carries advantage too. Current cost able to present better reality of economic transactions which provide sufficient information for economic decision making as compared to historical cost (Bakar & Said, 2007). Current cost accounting concept able to adapt to rapid changing business environment, hence it is believed that it reflects a better measure of efficiency of a company. Although current cost provides more relevant information but the market value of financial statement may be less reliable as it does not rely on evidences (Bakar & Said, 2007).

Besides, by using current cost accounting will open the door for others to manipulate the figures as it is not based on actual transactions (Thompson, 2007). Current cost accounting will be too subjective as it would be recorded depends on individual point of view and subject to different people (Bakar & Said, 2007).

In addition, current cost accounting is found that it is only useful for making short term portfolio decisions (Bakar & Said, 2007). Historical data seems able to drive the force behind long term return rather than current cost accounting. This is because historical data provide reliable evidence for the change in dividends from the past until current timeline (Bakar & Said, 2007).

As a conclusion, it is seems that historical cost accounting concept are more practical in reality. Accounting firm still continues using the flawed historical cost concept as there is no other better replacement (Thompson, 2007).