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Fair Value Estimation in Accounting

   

Added on  2020-11-23

6 Pages1316 Words83 Views
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Accounting Theory AndProcess
Fair Value Estimation in Accounting_1

Table of ContentsINTRODUCTION...........................................................................................................................1MAIN BODY...................................................................................................................................11. Pros and cons of fair value.......................................................................................................12. Explaining meaning of “the estimation follows a three tier process, with a strict preferencefor market based measure”...........................................................................................................23. Qualitative characteristics of financial information to be used in FV method in financialreporting.......................................................................................................................................2CONCLUSION................................................................................................................................3REFERENCES................................................................................................................................4
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INTRODUCTIONAccounting theory and practices refers to a combination or a set of various guidelines andassumptions that are needed to be comply with by each business organisation for the purpose ofanalyzing and summarizing its financial transactions. Present study shows a description aboutfair value (FV) accounting along with the explanation of three tier process. Further, it includes adescription of application of FV measurement over various elements of financial statements.MAIN BODY1. Pros and cons of fair valueFair value:The term fair value refers to a ideal price of product derived on the basis of variousmeasures of a close to ideal market. Fair value can be set by meeting two or more parties havingidentical and complete information about product and the market conditions as well (Chen,Shroff and Zhang, 2017). As per the the guidelines of international financial reporting standards,a company should show the value of its assets at lower of their fair market value or the bookvalue. It would lead in determining the accurate profit of the business. Although, there are some pros and cons of the fair market value as under:Pros:Including each business transactions at their fair value helps the business in derivingaccurate, relevant and reliable results from the books of accounts.Inclusion of all the assets and liabilities at their fair market value provides majoreconomic benefits to business.it leads in providing consistency in achievement of goals and objectives.It leads in providing an unbiased perception over the company's assets and liabilities.Cons:The fair value is determined by measurement and analysis of the market conditions. Incase of failure of determining fair value, the whole financial statement would providenegative results.Estimation of fair value results in frequent fluctuation of value of assets, liability held bycompany. It is meaningless for those assets that are to be maintained by company for longtime (Badia and et.al., 2017). 1
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