The correct answer is: Statement I is correct, but statement II is incorrect.
In traditional accounting, assets are shown at cost, year after year. This means that the cost of an asset is recorded when it is acquired and then that cost is used to depreciate the asset over its useful life. The cost of an asset is not adjusted for inflation, even if the value of the asset has increased due to inflation.
Inflation accounting is a method of accounting that adjusts for the effects of inflation. In inflation accounting, the cost of an asset is adjusted for inflation each year. This means that the value of an asset on the balance sheet is more representative of its actual value.
Statement I is correct because in traditional accounting, assets are shown at cost, year after year. Statement II is incorrect because the cost in inflation accounting does not represent the cost that prevails at the time of reporting. The cost in inflation accounting is adjusted for inflation each year.