Historical cost is the primary basis for asset valuation under U.S. GAAP. Why is historical cost NOT as important in the accounting systems of Latin America as in the U.S.?
A. Historical costs are too difficult to calculate in the currencies used in Central and South America.
B. The countries of Latin America have experienced very high rates of inflation, which would make historical costs meaningless to readers of financial statements.
C. There is very little foreign direct investment in the countries of Latin America, so few assets need to be accounted for.
D. In Latin America, asset prices are very stable, making historical costs equal to replacement costs, so it doesn’t matter which valuation basis is used.
Answer:B
Historical cost is the primary basis for asset valuation under U.S. GAAP. Why is historical cost NOT as important in the accounting systems of Latin America as in the U.S.?
A. Historical costs are too difficult to calculate in the currencies used in Central and South America. B. The countries of Latin America have experienced very high rates of inflation, which would make historical costs meaningless to readers of financial statements. C. There is very little foreign direct investment in the countries of Latin America, so few assets need to be accounted for. D. In Latin America, asset prices are very stable, making historical costs equal to replacement costs, so it doesn’t matter which valuation basis is used.