Measurement of assets and liabilities Flashcards
What are carrying amounts or book values
The dollar value assigned to assets and liabilities
Alternative measurement systems include
- Historical cost
- Current cost
- Realisable Value
- Present Value
Historical Cost
For an Asset: the cash or cash equivalents paid to acquire the asset
For a liability: the amount of proceeds received in exchange for the obligation
Current cost
“cost of replacing an asset or settling a liability “
For an Asset: the cash or cash equivalents that would have to be paid to replace the asset
For a liability: the un-discounted amount of cash or cash equivalents that would be required to settle the obligation
Realisable Value
“amount that an entity can expect to receive from disposal on an asset or settlement of a liability in the normal course of business “
For an asset: expected cash or cash equivalents from selling the asset
For a liability: the settlement value required to be paid in the normal course of business
Present Value
” Sum of the discounted cash flows associated with an item”
For an asset: the present discounted net cash flows associated with the asset
For a liability: the present discounted value of the future net cash flows that are expected to be required to settle the liabilities
Fair Value
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
Financial information must be
relevant and reliable so that it is useful for decision making