You are the accountant of one of the Big Four accounting firms. The IASB needs some advice from the practitioners of accounting to make certain amends to the IASB Framework for the Preparation and Presentation of Financial Statements as it does not prescribe a specific approach to measurement. What would your opinion be on the various cost accounting approaches? Which approach would you recommend and why?

Guidance:

Compare and contrast between the different cost accounting methods which the students have already studied in the textbook. In order to answer this question, students should begin by first describing the different cost accounting approaches and then compare them. In the process, students need to discuss the suitability of different cost accounting methods for different scenarios eg for what type of firm will historical cost accounting be more suitable for a manufacturingbased or servicebased firm; which type of cost accounting method is more appropriate in general Further in this discussion students should justify their opinion on the suitability of a specific cost accounting method for certain types of businesses by explaining the characteristics each cost accounting method and how it better describes the various types of businesses.

This type of discussion is the main expectation for the type of question asked here. In addition to this, students can provide some examples of their own based on their reading from the textbook. But students should be able to realise and mention that no one method can be universally applied to all types of business. Depending on their characteristics, different methods are suitable for different types of business operations. Students may close the discussion by stating that there is a move towards fair value accounting recently. Especially after the crisis, it is treated as a better approach to historical cost accounting.

Answer rating: 100% (QA)

there are several cost accounting approaches to consider each with its own merits and suitability fo... View the full answer