Question

What is cost concept? explain its accounting implication with examples?

Answer 1

This concept does not recognize the realizable value, the replacement value or the real worth of an asset. Thus, as per the cost concept

a) as asset is ordinarily recorded at the price paid to acquire it i.e. at its cost, and

b) this cost is the basis for all subsequent accounting for the asset.

For example, if a machine is purchased for Rs. 10,000/- it is recorded in the books at Rs. 10,000/- and even if its market value at the time of the preparation of the final account is Rs. 20,000/- or Rs. 60,000/- the same will not considered.

I hope this helps.

Answer 2

Answer:

(1)Cost Concept or Historical Cost Concept

:- According to this concept, an asset is ordinarily recorded in the books of accounts at the price at which it was acquired. This cost becomes the basis of all subsequent accounting for the asset. Since the acquisition cost relates to the past, it is referred to as historical cost. This cost is the basis of valuation of the assets in the financial statements. For example, if a business entity purchases a building for 720,00,000, it would be recorded in the books at this figure. Subsequent increase or decrease in the market value of the building would not be recorded in the books of accounts. If two years later the market value of the building shoots up to 760,00,000, the increased value will not be ordinarily recorded in the hooks of accounts.