Homework
Description
Accounting Conceptual Framework 2014 states that measurement is the process of determining the monetary amounts at which the assets are to be recognized and carried in the balance sheet. This involves the selection of the basis of measurement. Several different measurement bases are employed to different degrees and in varying combinations in the statement of financial position to provide decision-useful information about entity's economic resources. Paragraph 100 of conceptual framework of 2014 identifies a selection of different measurement bases as given below.
1) Historical cost
2) Current replacement cost
3) Realizable value
4) Present value.
Many accountants believe that value is the characteristic of an asset that should be measured (Henderson et al. 2017). According to Framework 2014, an asset brings future economic benefits to the firm. Therefore, the value of an asset should be the value of its future economic benefits. Furthermore, the essential requirement of the Corporations Act of 2001 is that the statement of financial position and the notes should comply with the accounting standards and present a 'true and fair view' of the entity's financial position at the end of the financial year.
Further, the widely used historical cost has been subject to many criticisms. Some empirical research argues that historical cost reliability may be illusory (McDonald, 1968; McKeon, 1971). Revsine (1973) argues that current cost is an excellent approximation to value. Chambers (2006) supports realizable value. There is no consensus among empirical researchers on selecting the appropriate measurement basis of assets.
Task
Consider the above requirements/arguments. Critically examine what bases of measurement of assets would you consider when preparing the statement of financial position to provide the true and fair view of the entity's financial position.
The report should incorporate the followings:
1) Distinguish between the recognition and the measurement of assets of the statement of financial position.
2) What are the essential components of measuring assets as per the Accounting Conceptual Framework 2014?
3) Distinguish between value-in-use and value-in-exchange.
4) Identify and explain some of the perceived strengths and shortcomings of the above different measurement bases.
5) What arguments are usually advanced to support the measurement of the assets?
6) Why do financial statement preparers still use historical cost when it has been subject to many criticisms?
Format your homework according to the following formatting requirements:
(1) The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
(2) The response also includes a cover page containing the title of the homework, the student's name, the course title, and the date. The cover page is not included in the required page length.
(3) Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.
References:
1) Accounting Conceptual Framework 2014: Framework for the Preparation and Presentation of Financial Statements:
2) Conceptual Framework for Financial Reporting:
3) Henderson, S., Peirson, G., and Herbohn, K. F., Ramsay, A & Borg, V. (2017). "Issues in Financial Accounting" (16th ed.) Frenchs Forest, NSW: Pearson Prentice-Hall
4) McDonald, D., 1968, Berkeley Symposium on the Foundations of Financial Accounting.
5) McKeown, J.C., 1971, "An empirical test of a model proposed by Chambers", The Accounting Review, Vol. 46, No. 1, pp.12-29.
6) Revsine, L. (1973), "Replacement cost accounting", Prentice Hall.