Bases of Measurement in Financial Reporting 2013



Bases of Measurement in Financial Reporting
Bases of Measurement in Financial Reporting 2013: Financial reporting is an integral part of every organization. For a transaction to be recognized in the financial statement, it has to the criteria of measurement. This means it should be measured at either cost or value. Therefore, the term measurement means a process of determining the monetary value of an element that is to be recognized in the financial statements.



There are several bases that can be used at different degrees to measure the financial statement transactions. To begin with, there is the historical cost method where are assets are recognized at the amount of cash paid as at the acquisition date. 
Bases of Measurement in Financial Reporting
The liabilities are recognized at the amount of proceeds received from the exchange for the obligation (example, accounts payable) or at the amount of cash that is expected to be paid on the liability such as the tax payable. 

Secondly, there is the fair value whereby assets are recognized at cash the amount that would have paid to acquire an equivalent asset or the same one. On the other hand using the current cost, the liabilities are recognized at their undiscounted amounts of cash amount required to settle the obligation.

 The other form of measurement is the realizable value whereby assets are carried at the amount of cash or cash equivalents that would have been obtained if the asset was to be disposed currently. The liabilities are carried at their settlement amounts at the undiscounted amount that is expected to settle the obligation as the business is in operation. 
Bases of Measurement in Financial Reporting
Finally, there is the present value base of measurement. The assets are carried at their present values which is the discounted future value of cash flows that the assets is expected to generate as the business is a going concern. 

Also the liabilities are recognized at their present values of the discounted future cash flows which are the amount that is to be used to settle the liabilities as the business operates.

Currently most organizations are using the fair value to supplement the historical cost. This is because the historical cost is unable to incorporate changes especially in cases where there changes in prices of non monetary assets 

Those are the Bases of Measurement in Financial Reporting

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