Question

Explain why either amortized cost or fair value accounting could be preferable for each of the following items.

1) Productive assets held for use

2) Assets held for sale

3) Equity investments

4) Long‐term debt

5) Pension assets and liabilities

Answer 1

1)productive assets held for use -preferable accounting treatment is amortization because here we are using the asset in our business So the value of the asset should be reduced .it should be depreciated or amortized during its life in business use.

2) Assets held for sale - preferred accounting treatment is fair market value .these assets are not put into use of the business rather they are held for sale .so those assests which are held for sale in course of business should be accounted at fair market value.

3)equity investments-preferable accounting treatment is fai marketvalue . because a companys networth can be know only when we lnok its market capitalisation value.so the equity investments should be valued at fair market value.

4)longterm debt -preferable accounting treatment is amortization.debt is fixed amount taken by a business which should be repaid in periodical intervals with interest and some principal amount .so we should amortize the debt when we pay the debt .

5) pension assets and liabilities-preferable accounting treatment is fair market value .these are the benfits given to the employee in future date.so pension assets and liabilities should be recorded at fairvalue at the end of every year.