The market price reflected in a transaction between two independent parties provides objective evidence of the cost of assets acquired or the market value of assets sold. It is useful for accountants to rely on objective evidence of economic value other than a long-ago actual market transaction. In the past, accountants have chosen to rely on actual market transactions. This reliance tended to bring about uniformity in how assets are recorded, but resulted in less useful information in those situations where a purchase cost may bear little relation to the economic value of the asset acquired.
For example, the costs of drilling an oil well are not related to the value of the well as measured by the amount of oil in it. Recording the costs of drilling the well is less useful than recording the economic value of the oil. Similarly, the cost of Manhattan may have been $24, but its current economic value far exceeds $24. Requiring actual market transactions also results in some assets not being recorded. Items such as copyrights and trademarks are usually recorded as assets only if they have been purchased by a corporation for a specific price.
When such items have been created or invented by the corporation, they were historically not recorded as assets, regardless of their economic value to the corporation. Similarly, high-quality employees of a corporation may have a large economic value, but accountants typically do not record such a value. For example, accountants for a professional football team might record the multimillion-dollar cost of a star quarterback obtained from another team as an asset, but an equally fine quarterback obtained without explicit cost (except for a year’s wages) from a college campus would not appear in the accounting records as an asset.
The Essay on Market Equilibration Process Paper 2
Other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. Demand shows the quantities of a product that will be purchased at various possible prices, other things equal. In short, there is a negative or inverse relationship between price and quantity demanded. Economists call this inverse relationship the law of demand (MCConnell, Brue, & ...
Economic assets provide future economic benefits to the corporation. All accounting assets are economic assets, but not all economic assets are accounting assets. Accounting assets are a subset of economic assets. Unless an item has future economic benefits to the corporation, it is not an economic asset and thus not an accounting asset. An item (e. g. , an employee) can have future economic benefits to the corporation and therefore be an economic asset, but it is not recorded as an accounting asset if it was not acquired in a market transaction. Reference Link : http://classof1. com/homework-help/accounting-homework-help