Also sometimes, the balance sheet value of the item may differ from its “true” value. A) Historical costs are not useless in rapidly changing environment though it does not provide the market value of an economic item at that particular point of time. The historical cost provides the management and the investors significant other options in recognising, reporting and measuring economic information. It cannot be useless, as it will help the owner or he manager to forecast the coming operational costs based on the previously available data. Its basic function is to tell the user the actual or true cost of the item.
Without knowing the original costs future projections can be misdirected. Historical cost is such advantageous that it is recognised and accepted by the multinational and corporations around the world. People know the historical accounting system, it might be very difficult to replace this method with ant foolproof method, and it will be more difficult for the accounting bodies to absolutely remove and replace it. B) Though, it is very difficult to replace historical cost accounting system but accounting systems should not e limited to historical costs.
There has to be a system which helps in determining the market value of an economic item. Accounting system should be developed where in the original price is shown and also the market value of the item be listed so that the investors do not face major problems. Historical cost can be a few years old data presentation and the acquisition will represent the false balance sheet data. A fair system can be introduces where in not only the cost of the item is mentioned but also the market value of is also listed to make the system fair and clear. This system has a big flaw in inflation, i. e.
Terms of assuming that, the purchasing power remains the same over a period. In reality, the same item or asset may be more expensive because of inflation thus, it is a major misrepresentation in the balance sheet, and this makes the system more prone to misrepresentation of data as the intangible assets such as goodwill may not be quoted by historical costs. So accounting systems should not be limited to historical costs. Q2) Goals of a corporation. The finance professor claimed that the goal of a corporation should be to maximize the value to share holders and the marketing professor laid emphasis on satisfying the customers.
In this case the similarity between these two opinions is that both of them are for the betterment of the company. In both the cases it’s the company who is to benefit. And the difference can be the way it will be carried out. For increasing the shareholders profit different strategies will be applied. Strategies such as pricing strategy can be one of the strategies applied and try to increase the profits for the share holders. On the other hand, if the corporation is to satisfy the customers than different techniques all together shall be introduced such as increment in the customer care representatives and make hem reach the customer by providing special training and try serving and paying extra attention to the customers. Unlike in the profit increment steps taken the increase in satisfying the customers can lead to some increment in costs as well. Accountants are often asked to give certain advices on price changing on the products and their help or input is necessary and helpful too. But they are however too likely to focus on the costs when they take part in appropriate price strategies. Marketing experts focus on a group of customers i. e. he certain market segment and their own needs considering each as possible target market. The company then will decide which segment to target with different product and marketing mix. Each of these approaches will be highly important in pricing. We can take an example of a restaurant, which has different number of customers coming in at different hours of the day. Now the customers coming in at the peak hours are too many and it creates problem for the restaurant staff and the place available . The owner will hire extra staff and furniture to solve the problem but his cost in expenditures will go up.
To make the restaurant profitable and to serve the customers better he takes all these actions and make them feel special by providing extra facilities to the customers. But at the same time he has made a point that these expenditures will be born by the customers to get those extra waiters and furniture for them. This way the customers are informed about this and the owner gets the money back in form of profit . groups of customers, each with their own needs, and considering each as a possible target market.
The firm will then decide which segments to target and will provide the selected target markets with different products and/or different marketing mixes. Each of these approaches are valuable in pricing References Thompson, K. (2007, January 06). Advantages and Disadvantages of Historical Cost Accounting. Retrieved May 27 from http://www. associatedcontent. com/article/110085/advantages_and_disadvantages_of_historical. html IS MARKET VALUE THE BEST ALTERNATIVE TO HISTORICAL COST? (n. d. ) Retrieved May 27, 2010 from http://www. scribd. com/doc/17844489/Market-Value-vs-Historical-Cost