Cost Concept Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

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FAQs on Cost Concept Video Lecture - SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

1. What is the cost concept in accounting?
Ans. The cost concept in accounting refers to the principle that states that assets should be recorded at their original cost. It means that when an asset is acquired, it is initially recorded on the balance sheet at the price paid to acquire it, including all costs necessary to bring the asset to its present location and condition.
2. How does the cost concept affect the valuation of assets?
Ans. The cost concept affects the valuation of assets by requiring them to be recorded at their original cost. This means that assets are not valued based on their current market value or any future potential value, but rather on the actual amount spent to acquire them. As a result, the cost concept can sometimes lead to discrepancies between the recorded value of an asset and its true market value.
3. Can the cost concept be applied to intangible assets?
Ans. Yes, the cost concept can be applied to intangible assets as well. Intangible assets, such as patents, copyrights, or trademarks, are recorded at their original cost, just like tangible assets. However, it is important to note that intangible assets may have a different valuation method than tangible assets, such as amortization over their useful life instead of depreciation.
4. What are the limitations of the cost concept in accounting?
Ans. The cost concept has certain limitations. One limitation is that it does not take into account changes in the value of assets over time. This can lead to discrepancies between the recorded value and the actual value of an asset. Additionally, the cost concept does not consider the effects of inflation, which can impact the purchasing power of the original cost. Furthermore, it can be difficult to determine the original cost of certain assets, especially if they were acquired a long time ago.
5. Is the cost concept the only principle used to value assets?
Ans. No, the cost concept is not the only principle used to value assets. In addition to the cost concept, there are other valuation principles, such as the fair value concept and the lower of cost or market concept. The fair value concept values assets based on their current market value, while the lower of cost or market concept compares the original cost of an asset with its current market value and records the lower amount. These principles are used in specific circumstances to provide a more accurate representation of an asset's value.
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