ABSTRACT
Essentials of Accounting was Paton’s first textbook after Accounting (1924). In Essentials, Paton continues to espouse a cautious policy toward valuations other than historical cost. In the majority of instances, the financial statements should be based on historical cost, but Paton encourages supplementary disclosures to inform management of the impact of price fluctuations.69 Nonetheless, in “periods of sharply changing prices,” a departure from cost valuation of inventory “has some merit where the period of production is sufficiently long, and the selling market is sufficiently sensitive, to make possible modifications of policy based on observation of the changing costs of goods on hand.” Paton adds, however, without rebutting the point, “The most common objection offered to the consistent use of replacement cost in pricing inventory is that such valuation will result in effect in the recognition of unrealized profit where replacement cost is higher than actual cost.”70
