Accounting is considerably a measurement tool since it assesses the value and returns of the company in comparison to the costs. The measurement of fair values (FV) of assets is inclusive of numerous aspects, for example, market risk or credit risk. According to Schroeder, Clark & Cathey (2010) the U.S GAAP standards differ in specificity of the valuation models. Some corporations determine the fair value (FV) of their assets and liabilities as a net amount, and not them in their singularity. The Financial Accounting Standards Board (FASB) emphasizes that is imperative for corporations to associate their measurements on their business strategy approach (Schroeder, Clark & Cathey 2010). Part A: Measurement in Accounting Theory Measurement of financial statements encompasses the inclusion of accounting principles that will establish the true worth of the corporation of item (Schroeder, Clark& Cathey 2010). Some of the regulators of financial institutions argue that measurement of all financial instruments can generate predicaments in assessing the true value of the commodities. As such, measurement in accounting entails a collection of theories that conform to particular items but not a general formula. According to Christian and Musvoto (2011), there is no single approach to measurement theory. They assert that measurement theory in accounting can exist in two forms, which include “Representation Theory of Measurement” and “Classical Theory of Measurement” (Christian & Musvoto 2011). Representational measurement is what accounting standards are utilizing to in valuing the progress and items of an institution. Measurement models a. Historical cost Historical Cost entails recording the financial assets in the market value that was given to acquire it during the purchase period. The value of the asset is recorded inclusive of the liabilities that were considered during the exchange at their market values. The historical cost comprises of determination of the present value of the item after deducting the depreciation amount of the commodity over the years in use. The original value of the asset will be depreciated using two approaches either the “straight line method” or the “reducing balance method” (Walton & Aerts 2006). These depreciation adjustments will depend on the specification of the accounting principles applied by the company. The deductions on the assets of the institutions are made to the prior valuations and not the current values of the assets (Pratt 2011). The assets and liabilities held for trading functions is recorded under the market value method but the long-term financial products, for example, loans are measured under the historical cost approach. Advantages of Historical cost The asset is valued at the initial price and not at the market value thus making it easier to ascertain the useful life of the asset. Initial costs are better at ascertaining the true value of the commodity and an individual can prudently determine the gains from it (Walton & Aerts 2006). In addition, historical cost is easily comprehensive than the alternative measurement models since it entails adjustments to the consideration value of the asset. Subsequently, it is not intricate to calculate the historical cost, unlike other models since most of the costs have been determined. Disadvantages According to Walton &
Current Issue in Accounting (Accounting Theory) Name Instructor Task Date Outline i. Introduction ii. Part A: Measurement in Accounting Theory iii. Measurement models a. Historical cost Advantages of Historical cost Disadvantages b. Net Realizable Value c…
One of the most overarching perspectives is that financial accounting theory allows for deliberations and insights to be developed regarding more effective and efficient accounting practices. Within this context of understanding there are a number of theoretical elements, oftentimes competing, as to the proper nature of accounting progress.
Year 2001, was marked as the year of establishment of International Accounting Standards Board (IASB). It was established with the idea to develop and implement International Financial Reporting Standards (IFRS). First of the IFRS was issued in the year 2003.
Taking this course changed my perceptions about the very pith and substance of how I would ever perceive numbers.After taking this course I realised that numbers like words and conduct and can be just as easily manipulated by the human mind.
The current dilemma in the business world is that financial accounting becoming more harmonized whereas the management accounting varies with firms and regions. This assignment doesn't aim to show that how this harmonized financial accounting occurs or what are the differences between the two.
This is necessary to achieve because of the perception that the venture gains legitimacy in the eyes of its external environment thereby ensuring the success and continuity of the endeavor. Oil corporations, for example, continue to enjoy huge profits
stakeholders in the society, which involves collective contributions by individuals, is the focal point of financial accounting, social and environmental theory. The primary issue concerning social and environmental theory is the way the society determines developments, goals,