Accounting Conventions. The general manager of the Pocono Mountain Manufacturing Company examined and discussed the company's annual income statement with the controller. She remarked that while the company earned two million dollars last year, its value is not much more than it was a year ago. The controller replied that this observation is quite correct. However, certain factors in accounting prevent reported operating result from reflecting the change in value of the company.
Required: a detailed explanation of the accounting conventions to which the controller referred. Include justification, to the extent possible, for the generally used accounting methods.