What do we have in common or not?

1. Build an argument against requiring current market values on the balance sheet.

Utilizing the historical value on the balance sheet provides a look into the real transactional value of the asset. What the company paid is ultimately what the company paid there is nothing left for interpretation. Utilizing the historical cost approach maintains consistency in the documentation of assets and liabilities. For example, in todays COVID climate, a company could decide to report higher valuations of certain assets/liabilities to make their balance sheets look more appealing. Even if the exercise was done in all levels of honesty, the value of assets and liabilities can change daily especially in a volatile economy, Giving businesses the autonomy to make valuation decisions could lead to a misrepresented balance sheet.

2. Build an argument against using historical cost.

Utilizing current market values can provide a more realistic view of the companys overall worth. For example, if a company had purchased a building/property in 1970 for $100,000 that building/property would certainly be worth 5 -10 times more than that in 2020. In a situation where a company was trying to sell their business, understanding, and documenting, the current market value of an asset (like a building) would make for a more realistic balance sheet and the companys overall worth.

3. Which of the two arguments do you find most convincing?

I feel that using historical cost method should still be used in order to properly document. I feel that footnotes in filing paperwork could easily outline the age and potential worth of an asset in question. I believe giving companies the option of noting what they believe is a value of an asset could cause them issues down the road on what they truly have as assets in the company.

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What do we have in common or not?

a. If assets will be recorded in the balance sheet at current market value it shall be subject to manipulation of accounts and financial statements . It is not possible in case of every assets to ascertain its current market value exactly in such case possibility of bias arises and it may results in distorted information. Thus chances of manipulation also arises.

b. Historical cost is price paid for asset, with time market cost may change but asset shall be recorded in financial statements at historical cost only. This will result in incomplete information because financial statements are showing historical cost which is not valid for current time.

c The most convincing argument is argument against requiring current market values on balance sheet(option a) because doing so will give rise to manipulation which shall effect users decisions. More over if assets are not shown at current market values which shall result in incomplete information this shortcoming can be eliminated by disclosing current market values in footnotes to financial statements.