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Financial Accounting-I

Notes Table 3.1: for Duality Concept

Debentures/Long-term Borrowing

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Concept of mutual agreement and sharing of benefi ts

Cost Concept
It is the concept closely relevant with the going concern concept. Under this concept, the
transactions are recorded only in terms of cost rather than in market value. Fixed assets are
only entered in terms of the purchase price which is an original cost of the asset at the moment
of purchase. The depreciation is deducted from the original value which is the initial purchase
price of the asset will highlight the book value of the asset at the end of the accounting period.
The marketing value of the asset should not be taken into consideration, why? The main reason
is that the market value of the asset is subject to fluctuations due to demand and supply forces.

The entry of market value of the asset will require the frequent update of information to the tune
of changes in the market. Will it be possible to record the changes taken place in the market then
and there? This is not only impossible for regular updating of information but also leads to lot of
consequences. Though the firm is ready to register the market value, which market value has to

be taken into consideration? The market value can be bifurcated into two categories, viz.
1. Realizable value and
2. Replacement value
Realizable value is the value of the asset at the moment of sale or realization. Replacement value
is another value which considered at the moment of replacing the old asset with the new one.
These two cannot be the same at single point of time and the wear and tear of the asset will play
pivotal role in fixing the realization value which has the demarcation over the later.

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