ACCM 5510 Homework 1- Historical cost accounting.DOCX

ACCM 5510 Homework 1- Historical cost accounting

Historical cost accounting is the traditional valuation approach within both U.S. and international accounting. However, it is often criticized for its failure to provide relevant information for investors, lenders and the creditors. From the alternative valuation techniques in the Fred’s pineapple store exercise,

a.Explain two advantages and two limitations of using historical cost for

i.the accounting valuation of assets; and 

ii.the measurement of periodic income.

b.Briefly discuss whether the use of historic cost accounting for assets should be entirely abandoned under U.S. GAAP and replaced with a DCF discounted cash flow (DCF) based valuation system. In your answer, clearly identify the comparative strengths and weaknesses of historical cost and DCF accounting.

Use your textbook (chapter 1 and chapter 5 pp. 148-163), Baxter, and the Wolk et al appendix 

(in attachment) to help answer this question.
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