Certain Difficulties

For reason of caution, asset values in BS are stated depending on the classification : for fixed assets (i.e. permanent facilities of the organisation that facilitate its operations), values are given at cost less depreciation; and for current assets (assets intended for conversion into cash in the process of normal operation), values are given at the lower of cost or market price. If market costs of fixed assets do rise in the meanwhile, the actual financial position will be much better than shown. In consequence, profits shown will be a higher proportion of the asset value shown though, in reality, the profit stated may not be justified in terms of current values. But, yet, historical costs less depreciation are shown to avoid later difficulties in revaluing the assets. However, since current assets are for sale, they being shown at market rates, if such rates are lower, stands justified.