Book Values versus Market Values In preparing a balance sheet, why do you think standard accounting practice focuses on historical cost rather than market value

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01-06-2021
Business

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Book Values versus Market Values In preparing a balance sheet, why do you think standard accounting practice focuses on historical cost rather than market value

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Eooyibo123idn Eooyibo123idn · Answer 1 · 2021-06-02T20:31:23-04:00

Answer:

Historical costs is objectively and precisely measured, whereas market values can be difficult to estimate, and different analysts would come up with different

values.

Explanation:

In preparing a balance sheet it is customary for a company to value the assets and other items based on historical costs rather than market values.

For example if an asset is purchased at $20,000, this value will reflect in the balance sheet in subsequent years. Or future calculation will be based on this.

Let's say yearly depreciation is $1,000 then after on year the value will be $19,000, after two years $18,000 and so on.

This is more object than market value which varies at any one time.

Market value for an item will vary depending on location and the market.

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