Advantages And Disadvantages Of Money Measurement
In this assignment I am discussing about the merits and demerits of …show more content…
are expressed in terms of money, and so they are recorded in the books of accounts. But the transactions which cannot be expressed in monetary terms are not recorded in the books of accounts. For example, sincerity, loyalty, honesty of employees are not recorded in books of accounts because these cannot be measured in terms of money although they do affect the profits and losses of the business concern. In other words, a fact or transactions or happening which cannot be expressed in terms of money is not recorded in the accounting books. As money is accepted not only as a medium of exchange but also as a store of value, it has a very important advantage since a number of assets and equities , which are otherwise different , can be measured and in terms of a common denominator.
Significance of the concept
The following points highlights the significance of money measurement concepts
• This concept guides accountants what to record and what not to record.
• It helps in recording business transactions only.
• If all business transactions are expressed in monetary terms. It will be easy to understand the accounts prepared by the business concern.
• It facilitates comparison of business performed of two different period of the same firm or of the two different firms in same period.
• Some strength or benefits of the firm may not be reflected in the firm.
It makes …show more content…
The main issue is to the qualitative and quantifiable aspects are cannot be recorded in the books of recorded in the firms and ignore the time value of money. However money measurement is not free from limitations. It has its own demerits. Due to inflation, the value of money is not remain the same over a period of time, when we add different assets bought at different assets bought at different points of time we are in fact adding diverse values, inflation is not take in the consideration of while preparing accounts. For an example, a piece of land is purchased in 1990 for Rs 2 lakh and another bought for the same amount in 1998 are recorded in the same price, although the first purchased in 1990 may be worth two times higher than the value recorded in the books because of rise in land value. So it leads the accounting data not reflect the true and fair value of the