2.9 Measuring the elements of financial statements Flashcards
What is “measurement” in terms of accounting?
Quantifying, in monetary terms, elements that are recognised in the financial statements.
What is the purposes of a “measurement basis”?
A benchmark from which to measure financial position.
What are the two measurement bases set out in the Conceptual Framework?
1 Historical Cost
2 Current value basis.
What is the “historical cost” measurement basis?
The historical price of the transaction or event that gave rise to the item being considered for measurement (.e.g the price paid for the asset, or consideration received for a liability).
What is meant by “amortised cost” in the context of the historical cost measurement basis?
Measurement of financial liabilities or assets measured at initial cost, less principal payment, and adjusted for amortization of discount/premium less any reduction for impairment.
What is the “current value” measurement basis?
Measurement based on current monetary value updated to reflect conditions at the measurement date.
When is “current value” more useful that the “historical cost” measurement basis?
Usually where the historical cost is not available, usually because the asset/liability did not arise from an exchange transaction.
What is meant by “fair value” in the the “current value” measurement basis?
The price that would reflect the market participant’s current expectations of the amount received to sell an asset.
What is meant by “value in use for assets and fulfillment value for liabilities” in the the “current value” measurement basis?
The value that reflects entity-specific expectations about the amount, timing and uncertainty of future cash flows.
What is meant by “carrying amount”?
The recorded cost of an asset or liability net of any accumulated depreciation or impairment losses. (a.k.a book value).
What is meant by “current cost” in the the “current value” measurement basis?
The amount required to be paid to acquire an equivalent asset or recieved to settle an equivalent liability,
