Question

Outline the recognition criteria and valuation methods for different assets under the Conceptual framework and discuss any issues with the recognition criteria or valuation methods (500word)

Answer 1

Recognition criteria and valuation methods of assets

  An asset is item in the balance sheet and it should be measured reliably for the purpose of knowing the exact value of the assets held in the business. We need to make some comparison with assets and liabilities inorder to know whether the assets are enough for the positive cashflow of the compny or not. There are many economic benefits are there enacted by the proper recognition and valuation of the asset. The economic benefits contribute, directly or indirectly, in the form of cash or cash equivalents. Assets are actually in two forms. We can classified it as tangible and intamgible. Assets can be intangible also which means no physical existence is needed. These type of assets also have the economic benefits. For example goodwill, patents and intellectual property are assets controlled by the by the company have some future economic benefits. So it can be considered as the main reason of assets recognition to know the future economic benefits of this assets.

  Asset valuation is the process of determining the current value of a company's assets. It includes valuation of  stocks, buildings, equipment, brands, goodwill, etc. Asset valuation allows us to calculate a companies net worth. This is done by deducting the current liabilities from the current assrts held in the company.The value of the asset is calculated by taking the assets now held in the hans of the company and deduct the current liabilities of the company.Then it will divided by the total number of shares outstanding. The value of the assets in the market is known as the market value of asset. There are different methods are used to value the asset.

• Cost Method
• Market Value Method
• Base Stock Method
• Standard Cost Method

These are some example of methods for valuing the assets of the company.

Eventhough there are some issues regarding this asset recognition and valuation. Now we can discuss what are the problems or issues related with the recognition and valuation.

Asset recognition is always related with the cost of the asset and so it may result in assets having a higher cost basis than their true value. This problem may leads to impairments,or it can be negativelyaffect the earnings or net income in the coming years. Because it is a continuing process and we have calculate the expenses from the beginning year. So may be the depreciation and amortization expenses will add with these excess cost and it will show a negative earning for the company. In case of asset valuation method there will be a chance of getting negative value for prospective earnings. And there is another problem is that we want to value the intangible assets of the company and it is complicated because the proper value can not be determined so the valuation may not be accurate and this can be considered as the drawback of this valuation.

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