Valuing assets

[Sa1998]

Can someone please explain to me this limitation?? PLEASE HELP!!!

[isaacdelatorre]

Hey there,

Valuing assets is a limitation to financial reports/statements. This is because it is sometimes hard to estimate how much an asset is worth - creating inaccuracies.

Sometimes, assets are recorded using its historical cost or cost when the asset was purchased. This becomes an inaccurate representation of the assets worth over time as depreciation occurs, in which the value of the asset decreasing over time as it becomes obsolete. If the historical cost is used on a balance sheet for example a year after it was purchased, this would distort and overstate the value of total asset. - thus limitation to financial resources as it is prone to inaccuracies.
Note - this also occurs when non-current assets like land appreciate.

This is also a limitation since intangible assets such as goodwill, patents, brand names which are listed on balance sheets are hard to calculate since there is no monetary value attached to them. Thus the valuing of assets can be overstated or understated = limitation of financial reports since it may be inaccurate or misleading.

Hope this helps

[Sa1998]

Thank you so much!!!!!!