Why is appreciation generally not used in financial statement values, according to the provided material?

• A. Because it would require external appraisals for objectivity
• B. Because it conflicts with cost of goods sold
• C. Because it can never reflect market values
• D. It is not used for financial statement purposes due to objectivity, continuity, and conservatism

Answer: (D)

The main idea is that asset values on financial statements are kept reliable, comparable, and prudent. Appreciation, or increases in market value, is generally not used because appraisals of value can be subjective and vary between evaluators, so using them would hurt objectivity. If values were routinely adjusted upward, comparisons across periods would be disrupted, and consistency in measurement would suffer, which clashes with the continuity principle. Finally, conservatism guides reporting to avoid overstating assets and earnings; increases in value are not recognized until they are realized, so gains from appreciation aren’t reflected in the statements.