Write short-note on: (1) Money Measurement Concept : - Vidyadip

Question

Write short-note on: $(1)$ Money Measurement Concept :

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Answer

In business, all transactions are represented in monetary unit, for accounting. Money is accepted as common measurement Economic worth of assets and liabilities as also revenue & expenses are not stated in physical but in monetary terms. The transactions which cannot be measured in terms of money will not be recorded in the books of accounts. Money measurement concept has two important limitations : $(1)$ The transactions and events affecting business, though important are not recorded in the books of accounts of business if they cannot be measured in terms of money. $(2)$ The money value charges from time to time but transactions are recorded in the books of account at their monetary value on the date of transaction & hence the effect of charge in value of money is totally ignored. e.g. land purchased at $Rs.60$ lac in the year $2005$ is recorded at its historical cost of $Rs.60$ lac & even if the value of such land is $Rs.8 $ crores in $2016$ as the accounts are prepared at $Rs.60$ lac on the basis of historical cost & therefore the effect of change in value of money is ignored.

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