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I. The CEO of the company believes that the company should incorporate fair value accounting from next year while preparing and
Finance & Accounting
Pages 6 (1506 words)
FAIR VALUE AND HISTORICAL COST ACCOUNTING By Name Course Instructor Institution Location Date Question 1 The debate between Fair Value and Historic Cost Accounting In the recent past, fair value accounting concept has been gaining popularity. In fact, the international accounting bodies such as Accounting Standards Board (IASB) and other international boards prefer fair value accounting to historical cost accounting.
The other stakeholders such as employees, suppliers, and stockholders also find fair value accounting more realistic in predicting the trends in business. It is, therefore, easier to ascertain if the business is a going concern concept is on course or otherwise. According to the international accounting standards, fair value refers to the value of an asset or liability, which forms the basis of exchange between willing parties trough arm’s length production. In other words, in free market transactions the fair value is equal to the market prices, which is determined by the forces of demand and supply. The fair value accounting has several models, which include equity approach, mixed approach, income approach, and full fair value. The equity approach incorporates the realized and unrealized profit or losses in the revaluation reserve (Bazley & Hancock, 2013). When any transaction is realized, the changes in fair value will be reflected under equity. Under equity approach, not all the realized gains have any effect on the income statement. ...
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