Historical Cost Accounting Vs. Current Value Accounting

1. “Academicians as well as practitioners have long debated the issue of historical cost accounting versus current value accounting. It seems like this is a never-ending story.” (Abu Bakar & Mohd.Said, 2007, p.20)

Historical cost accounting

The simple explanation of historical cost is assets and liabilities are required to be measured and reported at their acquisition price. While on the other hand, current cost accounting requires that assets and liabilities be measured and reported at their current or market value. It seems like this is a never ending story so academicians as well as practitioners have long debated the issue of historical cost accounting versus current value accounting.

Historical cost is also known as historical costing. It is a concept show that assets should be valued based on the money that company actually paid or the purchase price. Same in Generally Accepted Accounting Principles, both require that assets being reported on the balance sheet at their historical cost.

Historical cost is also the preferred method of

For instant, current cost for inventories is the current acquisition price of the merchandise or the current cost to produce it. The first systematic presentation of current cost accounting was presented in 1961, ‘The Theory and Measurement of Business Income’. (Edwards & Bell, 1961)

The business income consists of two components, one is current operating profit and another one is realizable cost savings. The former is the excess of the current value of the output sold over the current cost of the related inputs. Realizable cost savings are the increasing in the current cost of the assets in the current period. Furthermore, current cost accounting theory also recommends that the current cost of assets should be measured and reported in the balance