Asked by Lauren Ferris on Jun 13, 2024
Verified
One of the underlying assumptions of the Historical Cost Principle is that a stable unit of measure (currency) should be used for Financial Reporting. Is this always the case?
Historical Cost Principle
An accounting principle that assets should be recorded and presented in the financial statements at their original purchase cost.
Stable Unit
A financial assumption that the value of currency will remain relatively stable over time, affecting long-term economic projections.
- Understand the assumptions underlying accounting principles such as the Historical Cost Principle.
Verified Answer
DC
Donna CarrollJun 17, 2024
Final Answer :
The Historical Cost Principle is not very useful when inflation rates are high. As a result of the eroding purchase power associated with periods of high inflation, many countries have had to experiment with price-level adjustments. These adjustments often include asset revaluations to reflect their current values.
Learning Objectives
- Understand the assumptions underlying accounting principles such as the Historical Cost Principle.
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