What is wrong if assets like buildings are shown at market value in the balance sheet?
Vaidesh Kumar from India
Vaidesh Kumar! If you know accounting concepts, one of accounting concepts is cost concept. According to this concept, we have to show all assets on its cost not on its market value. Because, market value changes daily and if you start to show your assets on market value, your balance sheet will not show current position of your organisation.
For example, one hour ago market value of your business is $ 10 B. but due to decreasing the demand of these assets, after one hour hour, your asset's market value became $ 5 B. Next hour $15 B. Every hour assets values are changing. If you will start to show all fluctuation, no one will trust on your balance sheet. Its direct effect on your company's share prices. Moreover goodwill asset will reach zero level in balance sheet. So, as a good corporate businessman, it is your smartness to show all your assets on its cost. But there is any reduction due to using of assets, you can deduct annual depreciation. If you want to show your balance sheet's assets due to inflation. You can use inflation accounting rules.