Fair value measurement is relevant for inventory valuation but less so for property, plant, and equipment....

Fair value measurement is relevant for inventory valuation but less so for property, plant, and equipment. Explain why you agree or disagree with this statement.

Expert Solution

We agree to this statement. Fair value measurement is relevant for inventory valuation but less so for property, plant and equipment.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction.in the market at the measurement date under current market conditions.

Inventory is part of current assets while property,plant and equipment are non current assets.Current assets are those assets which can be realised or converted into cash within one year or within the accounting/ operating cycle.

Being a current asset, inventory will be sold off regularly, in the current accounting period. So, to show the correct profit earned from the sale of inventory, we should value the inventory at lower of cost or fair value. All its gains/ losses will be realised in the current period itself.

Property,plant and equipment is a non current asset. It is not held for resale.It is held for being used in the business for more than 1 year. It is disposed off when it is fully depreciated or used up. So, to constantly value Property, plant and equipment at fair value, is not feasible because it will unnecessary create unrealised gains/ losses, as the gains / losses will only be realised after its sale takes place.

ekkarill92 answered 2 years ago

State differences in application of fair value measurement for financial instruments, as compared to property, plant...

State differences in application of fair value measurement for financial instruments, as compared to property, plant and equipment and investment property.

Many organisations elect not to measure their property, plant and equipment at fair value, but rather,...

Many organisations elect not to measure their property, plant and equipment at fair value, but rather, prefer to use the ‘cost model’. This will provide lower total assets and lower measures, such as net asset backing per share. Required You are required to answer the following questions: (a)What might motivate directors not to revalue the property, plant and equipment? (b)What are some of the effects the decision not to revalue might have on the firm’s financial statements? (c)Would the decision...

Describe fair value accounting and fair value measurement. Give examples of fair value accounting and measurement

Assets such as receivables, inventory, and property, plant, and equipment are the key resources used to...

Assets such as receivables, inventory, and property, plant, and equipment are the key resources used to help an organization generate revenue. Select a specific asset within these three types and discuss how a company can use this to generate revenue. select the asset account of Coca-Cola. Provide an illustration/example of a transaction that would occur from the organization generating revenue. Clearly describe an example and reflect both the debit and credit entries one would record. Then, explain how those entries...

Assets such as receivables, inventory, and property, plant, and equipment are the key resources used to...

Assets such as receivables, inventory, and property, plant, and equipment are the key resources used to help an organization generate revenue. Select a specific asset within these three types and discuss how a company can use this to generate revenue. further explanation select one of the asset accounts in the discussion topic. Provide an illustration/example of a transaction that would occur from the organization generating revenue. Clearly describe an example and reflect both the debit and credit entries one would...

Explain the reason for not reporting property and equipment at fair value except in specified circumstances.

Acquisition and Disposition of Property, Plant, and Equipment

BE10.7 (LO 3) Fielder Company obtained land by issuing 2,000 shares of its $10 par value common stock. The land was recently appraised at $85,000. The common stock is actively traded at $40 per share. Prepare the journal entry to record the acquisition of the land.BE10.8 (LO 3) Navajo Corporation traded a used truck (cost $20,000, accumulated depreciation $18,000) for a small computer with a fair value of $3,300. Navajo also paid $500 in the transaction. Prepare the journal entry...

Acquisition and Disposition of Property, Plant, and Equipment

BE10.10 (LO 3) Mehta Company traded a used welding machine (cost $9,000, accumulated depreciation $3,000) for offi ce equipment with an estimated fair value of $5,000. Mehta also paid $3,000 cash in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)BE10.11 (LO 3) Cheng Company traded a used truck for a new truck. The used truck cost $30,000 and has accumulated depreciation of $27,000. The new truck is worth $37,000. Cheng also made a...

Acquisition and Disposition of Property, Plant, and Equipment

BE10.14 (LO 5) Ottawa Corporation owns machinery that cost $20,000 when purchased on July 1, 2017. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated depreciation of $8,400 at December 31, 2020. The machinery is sold on September 1, 2021, for $10,500. Prepare journal entries to (a) update depreciation for 2021 and (b) record the sale.E10.1 (LO 1) (Acquisition Costs of Realty) The following expenditures and receipts are related to land, land...

Acquisition and Disposition of Property, Plant, and Equipment

BE10.12 (LO 3) Slaton Corporation traded a used truck for a new truck. The used truck cost $20,000 and has accumulated depreciation of $17,000. The new truck is worth $35,000. Slaton also made a cash payment of $33,000. Prepare Slaton’s entry to record the exchange. (The exchange has commercial substance.)BE10.13 (LO 4) Indicate which of the following costs should be expensed when incurred.a. $13,000 paid to rearrange and reinstall machinery.b. $200,000 paid for addition to building.c. $200 paid for tune-up...

Question

Fair value measurement is relevant for inventory valuation but less so for property, plant, and equipment....

Solutions

Expert Solution

Related Solutions

State differences in application of fair value measurement for financial instruments, as compared to property, plant...

Many organisations elect not to measure their property, plant and equipment at fair value, but rather,...

Describe fair value accounting and fair value measurement. Give examples of fair value accounting and measurement

Assets such as receivables, inventory, and property, plant, and equipment are the key resources used to...

Assets such as receivables, inventory, and property, plant, and equipment are the key resources used to...

Explain the reason for not reporting property and equipment at fair value except in specified circumstances.

Acquisition and Disposition of Property, Plant, and Equipment

Acquisition and Disposition of Property, Plant, and Equipment

Acquisition and Disposition of Property, Plant, and Equipment

Acquisition and Disposition of Property, Plant, and Equipment