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dear sir, what happen to net profit and non current assets when there is a rise in prices?
I am guessing that what you are really wanting is to know what the effect is of using historic cost accounting in times of rising prices.
If so, then historic cost accounting understates the value of the assets on the Statement of financial position (because it is based on original cost, whereas the cost now would be higher).
Also, it overstates the profit (because with historic cost accounting bases the depreciation on the original cost. If the depreciation were based on the current cost (which would be higher) then the depreciation expense would be bigger, so lower profit.)dear sir, I guess when prices decreases then the effect is inverse i.e. assets is overstated and profits understated…please help me clear this confusion
That would be true (although less likely to be asked – in general prices tend to increase rather than decrease 🙂 )
Yess but I wanna confirm it because my exams are after tomorrow..hope Iwill pas..by he way sir do you have any specimen paper apart that of the acca and the open tuition because I have already practice both of them
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