HISTORICAL COST CONVENTION Definition

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HISTORICAL COST CONVENTION is that assets are recorded at their initial cost and are not subsequently revalued upwards, and liabilities valued at the amount initially received in exchange for the obligation. The relevance of the convention is that figures remain objectively based on verifiable figures, but in times of high inflation historical cost can become a dubious convention to follow.

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CONVERTIBLE BOND is a bond that can be converted to other securities under certain conditions.

UNDERABSORBED OVERHEAD is where total overhead has not been fully allocated to products sold or services offered. Such a condition can result in an understatement of COGS or cost of sales.

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