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Question
In times of rising prices, what effect does the use of historical cost concept have on a company’s asset values and profit?
Answer
________
Asset values are understated and profit value is overstated
So how is profit overstated? Don’t assets go to SOFP?
I explain this in detail in my free lectures on accounting concepts.
The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
(As a hint, the profit is affected by the depreciation expense, but do watch the lectures 🙂 )
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