Question

For recording assets, the IASB Framework lists a number of different measurement bases which are employed in different degrees and in varying combinations in financial statements. Discuss these bases with examples.

Answer 1

Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement

This involves the selection of the particular basis of measurement

A number of different measurement basis are employed to different degrees and in varying combinations in financial statements they include the following

* Historical cost - assets are recorded at the amount of cash or cash equivalents paid or the fairvalue of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation or in some circumstances (for example, income taxes) at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business

* Current cost - assets are carried at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent asset was acquired currently liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently.

* Realizable (settlement) value - assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the asset in an ordinary disposal. Liabilities are carried at their settlement values that is the undiscounted amounts of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business

* Present values - assets are carried at the present discounted value of the future net cash inflows that the item is expected to generate in the normal course of business. Liabilities are carried at the present discounted value of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business