11-02-2003, 09:06 AM
Hi Zubair!
You r right in saying that the last available is not the most approriate price but your reasonsing that it may not materialize in future is incorrect. If you held accountant responsible for ascertaining future price of inventories, it is an undue burden. The body of GAAPs does not support this approach. In theory at least, the inventories may not sale for next 5 years, so should we worry about what the valuations be 5 years from know. (Sometimes inventories are held for long period of time i.e. wine industry (the older the wine, more valuable it is)
Therefore for illustration purporses, if there is a general agreement in a country that inflation will be 10% next year, would u inflate your values by 10%? Accountants work on principle of conservitism (hence lower of cost or NRV not higher of cost or NRV). The events occuring in future affecting the valuation at balance sheet date should not be the concern of accountant. These will be reflected in future financial statements when they occur and affect the valuations.
Regards.
Edited by - Pervez on Nov 02 2003 041042 AM
You r right in saying that the last available is not the most approriate price but your reasonsing that it may not materialize in future is incorrect. If you held accountant responsible for ascertaining future price of inventories, it is an undue burden. The body of GAAPs does not support this approach. In theory at least, the inventories may not sale for next 5 years, so should we worry about what the valuations be 5 years from know. (Sometimes inventories are held for long period of time i.e. wine industry (the older the wine, more valuable it is)
Therefore for illustration purporses, if there is a general agreement in a country that inflation will be 10% next year, would u inflate your values by 10%? Accountants work on principle of conservitism (hence lower of cost or NRV not higher of cost or NRV). The events occuring in future affecting the valuation at balance sheet date should not be the concern of accountant. These will be reflected in future financial statements when they occur and affect the valuations.
Regards.
Edited by - Pervez on Nov 02 2003 041042 AM
