COST Accounting basics PDF

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COST Accounting basics concepts used in cost accounting...

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COST ACCOUNTING → Historical cost: is the price paid for an asset at the time when it was purchased. For example, property purchased on 2 January 2010 for R500 000 will be its historical cost and will continue to be so even at 31 December 2018.

→ Current cost: is the price that one would have to pay today (31 December 2018) for that property or a similar property. Assume that the neighbouring property very similar to ours in terms of size and condition, is now available for purchase at R870 000. This price will also be considered the current cost of our property.

→ Realisable value: is the price at which our property can be sold today ie on 31 December 2018. If our neighbour gives us an offer of R900 000 to buy our property, then the realisable value of our property at 31 December 2018 is R900 000.

→ Present value: Assets are expected to generate future cash inflows over its estimated lifespan. The present value of our property is the expected future inflows discounted to its value at 31 December 20:1 2018. If we rent the property at R240 000 per year fixed for the next 10 years, then the value will be the R240 000 per year for the next 10 years discounted to 31 December 2018, for instance R950 000, NB: Once we choose one of the above bases, we should apply that consistently to the item that we show in the financial statements. The most commonly used basis is the historical cost basis. Subsequent measurement will be dealt with in detail in later studies....