Theoretical Framework For Judgement In Financial Crisis

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student
Name of the University
Author’s Note

1CORPORATE ACCOUNTING
Table of Contents
Description of Two opposite Measurement Methods......................................................................2
Conceptual Structures......................................................................................................................2
When the Methods are Preferable....................................................................................................3
References........................................................................................................................................5

2CORPORATE ACCOUNTING
Description of Two opposite Measurement Methods
The presence of two measurement methods can be seen that are opposite to each other;
they are Fair value measurement method and Historical cost measurement method. These are
described below:
Fair value measurement method can be described as the practice to measure the assets
and liabilities at their current market value. This involves in measuring the financial aspects of
the companies like assets and liabilities at the at the price they would fetch that is predictable in
the market. In the determination of fair value, the requirement is to ascertain the value in which it
is expected that the asset will be sold or how much a liability would cost to be disposed of at the
measurement date (Zyla 2020).
Historical cost measurement method can be described as a method where the
companies are needed to present the assets and liabilities in the financial statements at their
historical cost. Historical cost refers to the amount that is originally paid for acquiring the assets
and it may be different from the assets’ present market value (Costa and Guzzo 2013).
Conceptual Structures
Fair Value Measurement Method – The conceptual structure of this method consists of four
concepts which are present market condition, intent, orderly transaction and third party. The
process to derive fair value must be grounded on conditions of the market on the date of
measurement instead of the transactions that took place at some former date. There is no
relevance of the intention of the holder of an asset or liability to hold it in measuring the fair
value (Cristea 2018). For instance, in case the intention of the holder is to sell an asset, this could