Cost concept is strongly pertinent with the going concern concept. In this concept, each and every transactions are recorded only in cost terms rather than in market value.
For example: Fixed assets are only entered in original cost of the asset at the moment of purchase. The main reason is the market value of the asset will require the frequent update of information to the tune of changes in the market. Its impossible for regular updating of information but also leads to lot of consequences like value of asset at the time of sale or replacement, because the market value can be bifurcated into two categories i.e. Realizable value and Replacement value.

Realizable value is the value of the asset at the moment of sale or realization. Replacement value is the another value which considered at the moment of replacing the old asset with the new one. These two cannot be the same at single point of time.

In short we can say that following the cost concept will help to reduce the scope for subjectivity and personal bias.


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