Historical cost is a traditional method of recording assets and liabilities at their original or nominal value without making adjustments for inflation. It first came in evidence in Jun 1979 in a French project after numerous debates. The historical cost principle states that the asset should include all cost necessary to get the asset in place and ready for use. The principle of historical cost is based upon two fundamental principles: the principle of monetary standardization and principle of
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Abstract Recently‚ fair value accounting suffers heated debate because the financial crisis. The purpose of this article is to evaluate and understand fair value both in literature analysis and practice. This paper emphasizes the advantages and disadvantages of the fair value measurement. Proponents believe that fair value can provide timely information that reflects current financial market conditions‚ and information supplied is reliable. On the other hand‚ critics argue that fair value accounting results
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Accounting Association DOI: 10.2308/accr-10134 Judging the Relevance of Fair Value for Financial Instruments Lisa Koonce The University of Texas at Austin Karen K. Nelson Rice University Catherine M. Shakespeare University of Michigan ABSTRACT: We conduct three experiments to test if investors’ views about fair value are contingent on whether the financial instrument in question is an asset or liability‚ whether fair values produce gains or losses‚ and whether the item will or will not be sold/
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1 The Fairness of Fair Value: SFAS 157‚ Irving Fisher and GECON Paulo Roberto B. Lustosa Professor ‚ University of Brasilia Abstract Fair value measurement is increasingly spreading in accounting standards. In February/2010‚ it was present in 61 FASB pronouncements. Such diffusion led to the issuance of SFAS 157 Fair Value Measurements‚ in which many prior definitions and measurement requirements‚ presented in other pronouncements‚ were replaced by a single standard on this subject. But the expansion
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Moving towards Fair Value Accounting In the past‚ historical cost measures were mainly used for reporting as they are reliable. However‚ historical cost is only relevant upon acquiring the asset and becomes irrelevant as time passes. On the other hand‚ fair value-based reporting‚ which accounts for changes in fair values‚ can produce balance sheet figures that provide a better reflection of the company’s value. This is also why accounting bodies are moving towards fair value accounting (FVA). One
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Fair Value: Is It Fair Game For Critics? The Financial Accounting Standards Board (FASB)‚ the accounting standard setters‚ issued Statement of Financial Accounting Standards No. 157 Fair Value Measurements that has set off a wave of controversy. Advocates‚ such as investors‚ support the idea of financial statements showing true value of a company’s assets and liabilities. Critics‚ on the other hand‚ think this pronouncement has caused volatile results in the current inactive market‚ blaming
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Contents Introduction Fair Value Background Advantages of Fair Value Disadvantages of Fair Value The debate on Financial Stability Conclusion References Introduction Society’s major concern is the recent financial crisis which had an unprecedented impact and dire consequences on the global economy and the current economic regulations around the world. The beginning of the economic paradigm change was the major collapse of previously leading financial
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FAIR VALUE MEASUREMENT 1. The meaning of fair value Fair value is the price that would be received from the sell of an asset or will be paid to transfer a liability in an orderly transaction between the market participants and the measurement date [IFRS‚ 13 – A501]. However in accounting and economics‚ fair value is the rational and unbiased estimate of a possible market price of a good‚ service or an asset. Fair value takes into account many objectives and subjective factors such as: Objective
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However‚ the historical cost accounting still widely and continuously to be used by most companies in their accounting. Conversely‚ reporting current cost in accounting are recommended rather than historical cost as it is the fair value reported in the current year would be beneficial to the firm and the shareholders of the company. 2.0 Historical Cost Accounting and Benefits of Current Cost 2.1 Introduction to Historical Cost‚ Disadvantages and Advantages of Historical Cost The historical cost accounting
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What is included in the cost basis of a long- lived asset? Explain for a least two types of such assets. Add the original price of your investment and any transaction costs. For example‚ if you buy 100 shares of stock at $10 per share and pay a $20 broker’s commission‚ your purchase expense totals $1‚020. Disregard dividends or other income you receive as cash while you own the investment. Dividends or interest are classified (and taxed) by the Internal Revenue Service as ordinary income and
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