StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Fair value vs. Historical cost - Research Paper Example

Cite this document
Summary
For the comparison of both, the paper analyzes two different companies and deduces how a certain accounting method has led it to achieve reliability and neutrality.
Fair…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER97.3% of users find it useful
Fair value vs. Historical cost
Read Text Preview

Extract of sample "Fair value vs. Historical cost"

Download file to see previous pages

(Pita and Gutierrez, 2006) Hence, the fair value of an asset or liability best estimates the market value of an asset or liability. The historical cost is defined as the original monetary value of an asset or liability. (Nikolai, Bazley and Jones, 2009) The accounting procedure that pertains to the use of the historical costs includes the use of the original prices of the assets and liabilities. (Plantin, Sapra and Shin, 2004)This means that the prices at which the assets are bought or sold, and the liabilities are incurred and settled are used in the historical costs method of accounting.

Thus, it implies that the value changes (gains or losses) are not considered by companies when using historical costs until an exchange takes place. From 1973 to 2000, there has been an issuance of the International Accounting standards by the IASC. The IASC was replaced by the IASB in 2001 and since then has tried to replace some of the IASs to International Financial Reporting Standards. (IAS Plus: Summaries of IFRSs and IASs) IAS 40 is one example as it moves from the revaluation model to either the fair value or the cost model on the adoption of IFRS.

According to IAS 40, investment property is defined as the property that is held by a person for the purpose of earnings rentals, capital appreciation or both. Under the fair value model, the investment property is the property that can be exchanged between willing and knowledgeable parties in an arm’s length transaction. Gains and the losses that occur in the fair value must be added or subtracted respectively from the net profits in the time period in which the changes take place. Under the cost model, however, the investment property is accounted for (as set out in IAS 16) by measuring cost less accumulated depreciation and less accumulated impairment losses.

The Land Securities Group is

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Fair value vs. Historical cost Research Paper Example | Topics and Well Written Essays - 1000 words”, n.d.)
Retrieved de https://studentshare.org/miscellaneous/1567949-fair-value-vs-historical-cost
(Fair Value Vs. Historical Cost Research Paper Example | Topics and Well Written Essays - 1000 Words)
https://studentshare.org/miscellaneous/1567949-fair-value-vs-historical-cost.
“Fair Value Vs. Historical Cost Research Paper Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/miscellaneous/1567949-fair-value-vs-historical-cost.
  • Cited: 0 times

CHECK THESE SAMPLES OF Fair value vs. Historical cost

Fair Value Accounting

fair value accounting is a way of accounting in which financial instruments are measured using 'fair values'.... fair value is the current exchangeable price of an asset or liability in an active market between willing and knowledgeable participants.... The IFRS support the fair value accounting system and require more and more financial instruments to be measured at fair values.... To move towards fair value accounting, it published a statement on which it defined fair value accounting and provided some guidelines regarding it it also issued a standard in 2007 giving companies an alternative to value assets and liabilities at fair value ....
17 Pages (4250 words) Essay

Historic cost accounting

Historic cost accounting is a valuation method which requires goods or assets used in production to be valued by the expenditures actually incurred to acquire those goods or assets, however far back in the past those expenditures took place Sources of historical cost data can include: invoices, purchase orders, cancelled checks, vouchers, contracts, Board minutes, general ledger records, real estate closing documents, tax assessment records, grant records, inventory cards, maintenance records, price lists, vendors, etc. … The cost of buildings includes all expenditures related to the acquisition of construction of said building, addition, or improvement....
4 Pages (1000 words) Case Study

Comparison of Historical Cost Accounting And Fair Value Costing

The paper "Comparison of historical cost Accounting And Fair Value Costing" highlights that management of the income and opportunities of a company is a very important factor in determining its consistency and relevance to the market players and market indexes.... This proves that historical cost is meaningless when it comes to relative current exit values.... historical cost Accounting is the traditional cost accounting method wherein the assets are being valued at their original cost less their accumulated depreciation....
8 Pages (2000 words) Research Paper

Fair Value and Fair Presentation of Financial Statements

The author focuses on a fair value which refers to the unbiased estimated market value of an asset or a liability.... fair value is used to represent the true value of an asset when the actual cost cannot be measured with certainty in absence of actual exchange.... nbsp;  … IAS 39 'Financial Instruments: Recognition and Measurement' requires the company to periodically appraise the financial assets and financial liabilities of the organization to arrive at the fair value of these assets in order to provide the information to stakeholders with a reasonable estimation of the actual current value of the instrument....
6 Pages (1500 words) Assignment

Fair Values Good, Historical Costs Bad

nbsp;Perhaps never before in accounting history has an issue generated such controversy as the debate between fair value and historical cost.... Perhaps never before in accounting history has an issue generated such controversy as the debate between fair value and historical cost, which is reaching mythic proportions as a battle between good and evil.... The paper "Fair Values Good, historical Costs Bad" discusses the accounting profession that has decided on a new set of standards for the valuation of assets....
7 Pages (1750 words) Essay

Managerial Accounting Concepts

hellip; The use of fair value as opposed to the historical cost accounting has always been quite a controversial choice.... In this case, the use of fair value would prove to be more beneficial when compared to historical cost accounting.... From the paper "Managerial Accounting Concepts" it is clear that the use of fair value is beneficial majorly because the use of fair value provides the companies with a chance to gain more loans....
5 Pages (1250 words) Assignment

Financial Crises and Fair Value Accounting

Prior to the financial crisis, the Fair Value Accounting method was adopted as a main part of the financial accounting reform process by the FASB and the IASB due to the evaluated benefits of the fair value accounting methods over other accounting methods like historical cost,… But after the financial crisis, the opponents of the Fair Value Accounting method pointed out that the fair value accounting method was one of the main factors which intensely fuelled the financial crisis....
9 Pages (2250 words) Essay

Benefits and Drawback of Fair Value Accounting Measurement

Some critiques have argued in favour of FVA that the assets reported under historical cost in the company's balance sheet have no relation to their current value.... For example, value of a company owned building may hold more value in present market than its depreciated book value as calculated under historical cost.... fair value Accounting is the valuation guideline introduced by Financial Accounting Standards Board (FASB) for standardizing the fair value calculations of financial instruments....
10 Pages (2500 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us