21 July 2010
In the accounts we follow historical cost basis which means fixed assets are shown on cost price. If we will not follow cost basis then there will be lot of problems which will arise. Firstly, there is daily flutuations in the price of the assets and if we will not follow cost basis then daily balance sheet will be changed.
Moreover daily balance sheet changes are not possible as it will be impossible.
Secondly, assets are purchased for use in the business and not for sale. Hence we should not concern about its sale value when our objective is not to sale them.
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