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I am not understanding how using historical cost accounting instead of current value accounting in time of rising prices the ROCE will be understated,
Can please help Sir,
Trasten Co operates in an emerging market with a fast-growing economy where prices increase frequently.
Which TWO of the following statements are true when using historical cost accounting compared to current value accounting in this type of market?
1Capital employed which is calculated using historical costs is understated compared to current value capital employed
2Historical cost profits are overstated in comparison to current value profits
3Capital employed which is calculated using historical costs is overstated compared to current value capital employed
4Historical cost profits are understated in comparison to current value profits
1 & 2
I’m a bit confused with you mentioning ROCE as it does not appear with the question itself. Am I missing something? Do you just mean capital employed?
Yes thats why I am confused because I am thinking of ROCE not capital employed only.
Thanks for clarification.