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

cost concept the cost concept says that
all items when we purchase is to be
recorded at the cost at which it is
purchased let us say if we were going to
buy if this business is going to buy a
plot of land a plot the worth of the
flock of man is around 50 lakhs but it
so happens that the particular person
selling in to us is in need of cash
immediately and we are the only people
who are in a position to give him cash
immediately so he offers it to us at 40
lakhs so 50 lakhs is generally the price
of the a price of this land a price of
the land in this area but he is giving
it to us forth 40 lakhs
we buy it for 40 lakhs recording the
book said 40 lakhs and the actual price
at which it is and what the cost at
which it is one it is a different matter
that the value of this land is now 50
lakhs and two three years from now it
may be worth the crore this way the
advantages that objectivity is meaning
because when I say this land is worth 50
lakhs somebody else may think it is
worth 55 lakhs and another person may
think it is worth 45 lakhs but there is
no such subjectivity when we always
record it and the cost at which we buy
it's always recorded assets are recorded
at historical cost
having said that cost concept therefore
has its own limitations because when we
draw up a balance sheet and show the
worth of our business put all our assets
on one side and the liabilities on the
other side the these assets and
liabilities may not be reflected at
their correct values if tomorrow the
business were to flows down this may not
be the actual value of
so today inflation accounting etc or
other branches of accounting which are
being introduced which are coming up in
order to overcome such limitations but
traditionally all we follow the cost
concept in order to maintain objectivity