All else constant,if the use of historic costs understates the opportunity costs associated with using a particular piece of capital,accounting profit will be understated.

Question

Quizplus · Accepted Answer

Accounting profit is calculated based on the historic costs of assets, not their opportunity costs. If historic costs understate the opportunity costs, it does not directly affect the calculation of accounting profit, which relies on actual expenses incurred and revenues earned.

All Else Constant,if the Use of Historic Costs Understates the Opportunity