11-23-2010, 05:04 AM
this is not final solution discuss below
Prudence principle: when choosing between two solutions, the one that will be least likely to overstate assets and income should be picked
Cost principle requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities. This principle provides information that is reliable (removing opportunity to provide subjective and potentially biased market values), but not very relevant. Thus there is a trend to use fair values. Most debts and securities are now reported at market values.
Prudence principle: when choosing between two solutions, the one that will be least likely to overstate assets and income should be picked
Cost principle requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities. This principle provides information that is reliable (removing opportunity to provide subjective and potentially biased market values), but not very relevant. Thus there is a trend to use fair values. Most debts and securities are now reported at market values.