In the article, the author writes, “Once we get beyond the mythmaking and arm

waving, it becomes clear that historical cost and fair value accounting are much
closer to each other than people think.” Do you agree with this statement? Discuss.

In our impression of that is we neither one nor the other with the statement.
From the best knowledge of ours, the International Accounting Standards Board
(IASB) issued IFRS 13 which is fair value measurement and defines fair value as the
price would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Meanwhile,
historical cost is a method of accounting in which the assets reported in the financial
statements of a bussiness are recorded based in the price at which the assets were
initially acquired. The definition of two fashion proves that fair value and historical
cost are two different elements. In order to depict more clearly trying to perceive from
different prespectives like in a way of the assets being depreciated or impaired.
Depreciation is always getting calculated on the historical cost while impairment is
always calculated on a fair value basis. Property, Plant and Equipment (PPE) are
needed to be disclosed at historical cost in Balance Sheet in contrast with Financial
Instrument where its needed to be disclosed at Fair Value in Balance Sheet. In
calculations and assumption viewpoint, historical cost calculation is easy and can be
easily derived and does not required any assusmptions compared to fair value
calculation is highly complex and requires various assumptions based on which fair
value can be derived
There are two methods to calculate the value of fixed assets of a company.
One is value of fixed asset on the basis of historical cost and other is on the basis of
fair value. Each method has its own advantages and disadvantages.
Historical cost accounting Is based on the idea that assets and liabilities are
calculated and booked at their original acquisition price. As a result, assets that
appear to undergo major changes in value over time such as technological changes
and innovation of land and buildings, may have been wrongly calculated and
measured in the financial statements as number of years after their acquisition by
the business. A generally accepted view on the effect of historical cost of company’s
financial reports is that it shows to understate the valuation of assets and overstate
the liabilities.
 Under generally accepted accounting principles (GAAP), the historical cost
principle accounts for the assets on a company's balance sheet is based on the
amount of capital spent to buy them. This method is based on a company's past
transactions and it is known to be conservative, simple to calculate, and reliable.
However, the historical cost of an asset is not necessarily relevant at a later point in
time. If a company owned a building many decades ago, then the building’s
contemporary market value could be worth a lot more than the balance sheet
indicates.
The concept of fair value accounting, as per the general IASB definition used
by Alexander, D. (2007), would assume as a fair value of an asset “the amount for
which that asset could be exchanged, or a liability settled, between knowledgeable
willing parties in an arm’s length transaction”. In this case, fair value would add
relevance to a statement, while historical cost would add reliability. For fair value, a
good estimate of market price is to be determined. There may be cases when this
would be a straight forward operation, but it may also sometimes be a problem.
Therefore, it is still arguable on how a reliable market price can be obtained for a
given asset, as in some cases arguments involve estimation of markets in terms of
being perfect and complete.