1. Are financial accounting statements useful to investors? 2. Describe and discuss the historical cost convention 3. Critically evaluate marginal and absorption costing

1. Are financial accounting statements useful to investors? 1.1 Introduction Financial accounting statements are summaries of monetary data about an enterprise and are used in an attempt to help make informed decisions in the present and future. Financial statements portray the effects of transactions and other events by grouping them into broad classes (or elements) according to their economic characteristics. The three basic financial statements are the balance sheet, the income statement and the cash flow statement. …

…inventoriable and become a part of cost of goods sold in the period when sales occur. Under marginal costing, reported operating income is driven by the unit level of sales. Under absorption costing, reported operating income is driven by the unit level of production as well as by the unit level of sales. Although absorption costing is the required inventory method for external reporting in most countries, many companies use marginal costing for internal reporting.