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Measuring the elements of financial statements - Coggle Diagram
Measuring the elements of financial statements
Measurement is described as quantifying in monetary terms, elements that are recognised in the financial statements
The objective of measurement is to contribute to the faithful representation of relevant information in the financial statements
Historical cost
This is the historical price of the transaction or event that gave rise to the item being considered for measurement
It is the price paid or cost incurred to acquire or create an asset, or the value of the consideration received pursuant to the incurrence of a liability
Assets and liabilities presented at historical cost reflect the prices at the dates of transactions, rather than at the date of the financial statements and so amounts presented may reflect prices at multiple dates and may impede comparability
The historical cost of both an asset and a liability will be updated over time to depict its present condition, eg if an asset is impaired
Current value basis
This is based on current monetary value, updated to reflect conditions at the measurement date
This method can be applied in circumstances in which a historical cost amount is not available, typically because the asset or liability did not arise from an exchange transaction
Fair value
The price that would reflect market participants current expectations of the amount to be received to sell an asset or paid to transfer an asset in a orderly transaction at the measurement date
Value in asset for assets and fulfilment value for liabilities
the value that reflects entity specific current expectations about the amount, timing and uncertainty of future cash flows
The descriptions of value in use and fulfilment value are derived from IAS 36
An asset must not be carried in the financial statements at more than the highest amount to be recovered through its use or sale
If the carrying amount exceeds the recoverable amount, the asset is described as impaired. The entity must reduce the carrying mount of the asset to its recoverable amount and recognise an impairment loss
Current cost
Reflects the current amount required to be paid to acquire an equivalent asset or received to settle an equivalent obligation or liability
Presentation and disclosure
P&L / OCI
This provides information about an entity's financial performance for the reporting period
In exceptional circumstances, the IASB may decide to exclude some income or expenses from the P&L and include it in the OCI to provide more relevant information or a more faithful representation
Recycling
The term used for the release oft ems in the OCI to the P&L in a subsequent period
Income and expenses in the OCI should subsequently be recycled to the P*L provided that the recycling results in more relevant and faithfully representative information in the P&L