Question

Question 2 - 750 words

(A FRESH ANSWER IS REQUIRED TAKING IN CONSIDERATION THE FULL QUESTION AND TOPIC. AND PLEASE TAKE INTO ACCOUNT THE WORD COUNT REQUIRED. PLEASE DONT REWRITE THE EXISTING ANSWERS AVAILABLE AS THEY ARE NOT ACCORDING TO REQUIREMENT AND NOT RELATING TO WHAT IS REQUIRED.)
The AASB Framework OB2 states that: "The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and
potential investors, lenders and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling or holding equity and debt instruments,
and providing or settling loans and other forms of credit"
Does the identification of particular groups of users have implications for the measurement basis that will ultimately be adopted by the AASB for use in Australia? Justify your position. In
your response you should consider whether fair values or historical costs would be more relevant to the users identified in the AASB Framework.

Answer 1

Financial statements of any entity reflect the financial performance and financial position by recording the transactions and other events. All these transactions and events are grouped into broad classes according to their economic characteristics. These are termed as elements of financial statements. The elements directly related to the measurement of financial position in the balance sheet are assets, liabilities and equity. The elements directly related to the measurement of performance in the income statement are income and expenses. The cash flow statement usually reflects income statement elements and changes in balance sheet elements; accordingly, this Framework identifies no elements that are unique to this statement.

While preparing the financial statements different measurement bases are used for valuing the items financial statements like historic cost, current cost, realizable value, and present value.

Historical Cost: As per this concept, Assets are recorded at original cost or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are also recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the amounts expected to be paid to satisfy the liability in the normal course of business.

The measurement basis is mainly used to value the item of financial statement. This is usually combined with different measurement bases to value different items. For example, inventories are usually measured at the lower of cost and net realizable value, marketable securities may be measured at market value and pension liabilities are measured at their present value in preparation and presentation of financial statements.