ACC 502 Grand Canyon University Historical Cost for Valuing Discussion – Description
As indicated in the reading, U.S. GAAP requires the use of historical cost for valuing most assets while IFRS permits the use of fair value. Using the first letter of your last name, answer the question below for which the letter of your name falls in the range. Use your own words to summarize the information from the textbook. Provide proper citations for resources used, including the textbook.
A – M: Assume you are in support of the historical cost basis as required by GAAP. Discuss why you think the historical cost approach best values the long-term assets on the balance sheet. In addition, provide an example to support your position.
N – Z: Assume you are in support of the fair value basis as recommended by IFRS. Discuss why you think the fair value approach best values the long-term assets on the balance sheet. In addition, provide an example to support your position.
Participate in follow-up discussion by responding to classmates who posted about the opposite approach and professionally debate why the approach you reported on is the better method for valuing the long-term assets on the balance sheet.
Jessica Grajeda Burgos
Jul 8, 2023, 10:32 PM
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The historical cost basis required by GAAP is best defined as a method used to record the value or price of a long-term assets. When using the historical cost method in the balance sheet the asset is recorded in the price it was purchased. This is the best method in regards to long-term asset purchases because regardless if there has been a rise or decrease in prices, the purchase remains the same on the balance sheet. The historical cost method has been demonstrated to be more beneficial to companies rather than the fair value method. Furthermore, “primary reason for this reluctance is that once fair value is used, frequent updates are required” (Young et al., 2018). Having the long term assets at a set value helps prevent any changes from being done in the balance sheet and from reporting future losses that may come with the decreases in prices. An example of the historical approach is when a company buys a building or when land is purchased. In the balance sheet the amount is recorded as a set value, but if the company decides to use fair value frequent changes have to be done and not only with that specific purchase, but any purchase that falls into that category. Having the fair value lead to more frequent mistakes, using the historical approach can help ensure companies record accurate records and when deciding about future purchases go back into the balance sheets and find the accurate price. Having that resource will be very useful for all companies and prevent them from using two different methods on their balance sheets.
Young, S. D., Cohen, J., & Bens, D. A. (2018). Corporate financial reporting and analysis (4th ed.). Wiley.ISBN-13: 9781119494577
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