What do our opinions have in common or not?

Case for Using Historical Costs / Case Against Fair Market Value

GAAP requires assets be reported with their historical costs on the balance sheet. This prevents overstating an asset's value especially in volatile market conditions. Asset depreciation is recorded over the assets useful life on the BS below the historical cost. A positive for historical costs is there are no market conditions, inflation or managerial opinions deciding an assets value. This keeps for consistent reporting across a company and in accounting in general.

Case for Using Current Market Values / Case Against Historical Costs

Without researching the pros and the cons (or taking this accounting course), I would think that it makes more sense to report assets at their fair market value. Let's take land and a building that was purchased in 1970 for $135,000. If fair market value is now $20 million, I would think this should be reported as such thus increasing the company's assets on the balance sheet. If we are measuring the economic value of the company by taking total assets minus total liability plus owners equity, this added value is a higher representation of the company in my opinion. This could also improve financial ratios like the debt ratio or allow for various tax incentives

Most Convincing

After reviewing the pros and cons, using the historical cost is probably most convincing as it takes all external factors and opinions out of the equation.

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a. If assets will be recorded in the balance sheet at current market value it shall be subject to manipulation of accounts and financial statements . It is not possible in case of every assets to ascertain its current market value exactly in such case possibility of bias arises and it may results in distorted information. Thus chances of manipulation also arises.

b. Historical cost is price paid for asset, with time market cost may change but asset shall be recorded in financial statements at historical cost only. This will result in incomplete information because financial statements are showing historical cost which is not valid for current time.

c The most convincing argument is argument against requiring current market values on balance sheet(option a) because doing so will give rise to manipulation which shall effect users decisions. More over if assets are not shown at current market values which shall result in incomplete information this shortcoming can be eliminated by disclosing current market values in footnotes to financial statements.