Financial Accounting Concepts and Practices
Added on 2020-05-16
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Running head: Advanced Financial AccountingAdvanced Financial AccountingUniversity NameStudent NameAuthors’ Note
2ADVANCED FINANCIAL ACCOUNTINGTable of ContentsEnumeration notions in relation to historical cost as well as fair value accounting..................2Analysis of benefits along with challenges of utilizing historical cost as well as fair value ....5Detection of valuation exercise for specific non-financial assets..............................................7PPE and intangibles....................................................................................................................7Assessment whether PPE and intangibles are consistent across three different corporations.12Viewpoints as regards free choice between historical and fair value system of accounting. . .12References................................................................................................................................14
3ADVANCED FINANCIAL ACCOUNTINGEnumeration notions in relation to historical cost as well as fair value accountingIn accordance with regulations of IFRS 13 for fair value measurement, fair value isnecessarily a market founded system of enumeration and not an entity specific aspect ofmeasurement. Basically, market transactions otherwise market information might possibly bemade available or not made available for specific assets and liabilities. Nonetheless, theprimary objective of fair value enumeration in each of the two cases can be said to beidentical for approximating the price at which particular orderly business transaction to sell ortransfer the firm’s assets occurs between market participants right at the enumeration date(Williams 2014). In essence, this specific regulation of IFRS is pertinent when another IFRSpermits fair value measurement otherwise disclosures as regards those measurements(reference to paragraph 5 under IFRS 13). As per paragraph 11, a fair value system ofmeasurement is necessarily for a particular asset otherwise a liability. Therefore, at the timeof enumerating fair value a particular entity has the need to take into consideration variouscharacteristics of asset/liability if market participants would take into account thosecharacteristics during pricing of firm’s assets/liabilities at the enumeration date. Nevertheless,this type of features comprise of conditions along with locations of the asset together withcontrols if any on mainly the sell or usage of the firm’s asset (Warren and Jones 2018).Particularly, asset/liabilities calculated at fair value can be a separate asset or else liability ora group of asset/liability. In essence, historical cost can be identified as the original cost of a particular asset asrecorded in the accounting records of a firm. Most of the business transactions recorded in theaccounting documents of a business concern are stated at the historical costs (Henderson etal. 2015). In actual fact, a historical cost can be verified by way of accessing the sourcepurchase otherwise trade documents. Nonetheless, historical cost necessarily has the
4ADVANCED FINANCIAL ACCOUNTINGdisadvantage of not essentially replicating the real fair value that is expected to diverge fromthe cost of purchase over a specific time period. According to the accounting standard,historical costs have the necessity for specific adjustments with time. Armstrong et al. (2015)suggests that historical cost differs from several other costs that are necessarily assigned to aparticular asset, such as replacement cost else wise cost of inflation adjustment. Nevertheless,historical costs can still be considered as a central notion of recording assets, although fairvalue is substituting the same for particular types of assets. The ongoing substitution of thehistorical cost by fair value system of dimension is based on the argument that historical costrepresents a conventional image of a firm. Nevertheless, the choice between utilizing fair value as well as historical cost scheme ofaccounting can be regarded to be widely argued matter of concern. Nonetheless, the argumentessentially dates back to the year 1990s. Most of the accounting standards, IFRS presents achoice between fair value and historical cost measurement system for different non-financialassets. Furthermore, IFRS also has the requirement of an ex-ante commitment that indicatescommitment to one of two stratagems of accounting (Francis et al. 2015). Therefore,managers necessarily have a reason to market demands and commit to a particular accountingtreatment that can aid in maximizing value of the corporation. In addition to this, fair valueaccounting system for diverse non-financial assets have the advantage of augmented valuerelevance along with information content, reduced information asymmetry and increasedcomparability. Reports recommend that utilization of fair value instead of historical cost isnot essentially random and occurs when benefit overshadows the costs (Hermason et al.2016).
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