Answered

Explore Westonci.ca, the leading Q&A site where experts provide accurate and helpful answers to all your questions. Our Q&A platform provides quick and trustworthy answers to your questions from experienced professionals in different areas of expertise. Get immediate and reliable solutions to your questions from a community of experienced professionals on our platform.

Financial statements are inexorably moving to a model where all assets and liabilities will be measured on the basis of fair value rather than historical cost.
Required:
a. Discuss the conceptual differences between historical cost and fair value.
b. Discuss the merits and demerits of the two alternative measurement models.
c. What types of assets (or liabilities) more readily lend themselves to fair value measurements? Can we visualize a scenario where all assets are measured using fair value?
d. What are the likely effects of adopting the fair value model on reported income?

Sagot :

Zviko

Answer:

Part a

historical cost = this is when we carry assets and liabilities at cost less accumulated depreciation or amortization.

fair value = this is when we carry assets and liabilities at amount that they could be exchanged for at arms length between market participants

Part b

Historical Cost

Merits : Value are easy to obtain since they are generated internally

Demerits : Is not very accurate.

Fair Value

Merits : Accurate method as it reflects market situation

Demerit : Costly as data and information is obtained externally

Part c

Assets : Investment Property and Financial assets measured through Profit and Loss

Liabilities : Bonds

Part d

Income is shown more accurately and eliminates biases form estimates.

Explanation:

Historical Method carries assets and liabilities at cost less accumulated depreciation or amortization while Fair Value Model carries assets and liabilities at amount that they could be exchanged for at arms length between market participants

We appreciate your time on our site. Don't hesitate to return whenever you have more questions or need further clarification. We hope you found what you were looking for. Feel free to revisit us for more answers and updated information. We're here to help at Westonci.ca. Keep visiting for the best answers to your questions.