Question

In: Accounting

a. what assest and liabilities are measured based on more relevant information ans what are measured...

a. what assest and liabilities are measured based on more relevant information ans what are measured based on more faithful representation

Solutions

Expert Solution

a. Relevancy and faithful representation are the fundamental characterises of the qualitative accounting information system. Relevant information is the information which is relevant to the end user in decision making. For example: a new asset purchased by a firm is more relevant information than existing book value of plant, property and equipment. Faithful representation is providing full discourse of all necessary information without bias and free from error. For example: giving a fixed assets schedule as an annexure to the balance sheet.

Based on above assets and liabilities which are measured on market value basis are more relevant to end users of financial information since it helps them in appropriate decision making. For example: It helps the firm in measuring the market value of the firm rather than book value of the firm. The assets and liabilities which are measured on cost value basis and presented with appropriate disclosures are more faithful representation. For example: Disclosure of depreciation method in footnotes to account for various class of assets and giving the reasoning for the same is full disclosure of complete information without bias and free from error.


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