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Measurement Choices (Deprival Value (Uses (Competitor info (cost of…
Measurement
Choices
Historical cost accounting
Measure
Assets
Cost at time of purchase
Gains unrecognised
Until sold
Manipulated
Control
When realised
Raise profits conveniently
Liabilities
proceeds recieved
Expected
tax
Uses
Determine
Profit in period
Reward/dividends in period
Lenders/creditors prefer
Lowers dividends/profits
less risky
Downfalls
Conservative
Historical
Intangibles
Not recognised
But add value
Because unpredictable
Intellectual property
Trademarks
Brand recognistion
Advantages
Simple
Conservative
Objective
Consistent
Deprival Value
Economic value to the business
Does it add value
Yes
No
worse off without it?
Replacement cost?
Value in use
worse off by
net profit generated
by asset
Replacement cost
Worse off
Cost to replace
If they didn't have it
Net realisable value
by the amount they could have sold it for
Worse off
Uses
Stakeholders
Risks
Competition in market
vulnerable to new entrants
Ombusmen
Fair trade
Competitor info
cost of entering market
Market attractiveness
Investors
Check
maintaining operational capabilities
Fair Value
Downfalls
Never 100% accurate match
Conflicts with historical
Not recognised
Gains as they arrive
not when sold
reduces risk
manipulating
profits
selling
Timed
Benefits
Current market prices
Decide
Keep asset
Sell asset
Investors
Probable
Profit generated
by asset
measures
Assets
Liabilities
By Current Value
Fair value hierarchy (Quoted price)
1 - Active market (quoted)
identical match
3 - inactive/low active market (unobserved)
2 - Active Market (observed)
Similar match
Inactive
market
Identical match
Increase
in fair value of asset
during period
Downfalls
Overstated
Changeable
Blamed for financial crisis