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Shareholder Value (accounting measurements (Historical cost accounting…
Shareholder Value
accounting measurements
Historical cost accounting
based on historical costs
based on cost at which an asset was purchased
fair - based on actual transactions
audit trail
not a fair value
inability to determine some costs
Fair value
based on value in current markets
most relevant method
objective - determined by current market value not estimated
estimates must be made where no current market value available
assets measured as if they're all going to be sold off rather than current value to company
market volatility can temporarily disrup and distort profits
Deprival value
based on how much worse of a business would be if it were deprived of an asset
including opportunity cost loss etc.
shareholder value - short term
focuses on short term gains rather than long term value
conflicts between shareholders and managers
immediate gains can affect long term value negatively
companies should focus on value creating activities rather than quick financial gain
accounting measurement is useful
allows for financial planning decisions
allows for accurate management performance appraisal
how well managers have managed company assets
allows for good decisions to be made appropriately