Nur Fadzilah bt Norizan Nur Izyan bt Mohd Ishak Nurul Aqilah bt Zamri Thilaga Segaran

(AC086628) (AC086934) (AC085167) (AC086628)

Yes. The change in asset value in increase in wealth or income are same because: Gain or loss indicate economic events to the company Reflects current market condition More accurate, updated and comparable for economic decision making.

Discussion Question

Question1 According to historical cost system, what is the objective of accounting and the role of profit? What criticisms are made of profit calculated under the historical cost system?

According to the historical cost system:

The objective of accounting
Seen as monitoring the stewardship function of management by calculating income and valuing net assets in a conservation way.

The role of profit

The accounting entity must first retain the same amount of capital that it had at the beginning of the same period where all assets and liabilities are valued at their historical purchase cost.

The criticisms that are made of profit calculated under the historical cost system is:
Income with no recognition of the changing value of assets and liabilities is misleading and results in incorrect dividend policies This is because there maybe losses or gains simply from holding assets and this should be recognized when evaluating performance on regular basis.

Question 5 Explain the Edward and Bell concept of business profit

Current operating profit Current operating profit is excess of the current value of the output sold over the current cost of the related inputs. Realisable cost saving Realisable cost saving are the increase in the current cost of the assets held by the firm in the current period

They include both realized and unrealized cost changes and the business profit is therefore calculated on a real basis that is the fictional element due to changes in the general price level is eliminated
Edwards and Bell believe that holding gains represent a saving attributable to the fact that the input was acquired in advance of use