Financial transactions of the company

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Financial accounting theory
Accounting measurement
2/26/2020

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Contents
Introduction......................................................................................................................................2
Accounting measurement................................................................................................................2
Role of measurement in accounting................................................................................................2
Basis of accounting measurement for assets and liabilities.............................................................3
Basis of accounting measurement for inventory.............................................................................4
Regulatory requirement of the accounting measurement................................................................5
Hierarchies of accounting management...........................................................................................5
Accounting measurement approaches.............................................................................................6
Development of measurement activities..........................................................................................7
Issues in financial reporting.............................................................................................................7
Measurement under IFRS................................................................................................................8
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

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Introduction
Financial accounting theory is essential in every organization as it helpsin tracking the financial
transactions of the company. The theories are the standardized guidelines in the company which
is the framework for the accurate financial statement and reporting. There are the several
accounting theories which will be explained in this report to predict the accounting practice.
Financial accounting is essential in every organization as provides the statement for analyzing
the profitability of the company (Enahoro and Jayeoba, 2013).The report is major focus on the
accounting measurement of assets andliabilitiesand the inventory. There are the several methods
to evaluate the measurements so in this report the explanation of that measurement will be done.
Accounting measurement
It is the unit through which the computation of the accounting activities are done and accounting
data is evaluated. The accounting data is evaluated and compared with the measurable element in
terms of the unit, money or the hours. Accounting measurementis essential in every part of the
business to evaluate what is happening in the company. The performance of the company is
measured through the accounting measurement(Christensen and Nikolaev, 2013). The historical
cost of accounting is adopted measurably in the accounting and considered as the relevant
approach.
Role of measurement in accounting
Measurement accounting plays the essential role in the company as it helps in valuating which
element is used for comparing andevaluating the accounting data. It majorly focuses on the
importance and purpose of the company and involve with the formal numbers. Measurement in
accounting plays the major role in the not relating to the attributes of the accounting but also
with considering the physical attributes (Regoliosi, 2016).Their major role is to provide the
accurate financial performance to the investors, creditors and the business management.
Basis of accounting measurement for assets and liabilities
Historical cost: It is measurement value used for the asset under the GAAP where the value of
the fixed asset is recorded at its original cost. This concept is essential in the accounting as it

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makes the accounting information unreliable anddistorts the accounting (Regoliosi, 2016).The
value which is recorded is based on the actually paid money or the purchase price. This
accounting data is free from biasnessandleast costly for the company.
Fair value measurement basis: The present market values are used in the fair value accounting
to recognize the certain assets andliabilities in the company. The value at which the asset can be
sell and the legal responsibility which can be settled to the third party is the fair value price. It is
the IFRS concept in which the price received by selling an asset or the amount paid by
transferring the liability under thecurrentmarketconditions are the fair value accounting. The
actual value of assets andliabilities are shown so these benefits to the investorsand effective
decisions can be made by them (Witzky, 2017).It shows the accurate value of accounting and
states the true income which limits to manipulate the true income.
Deprival value: To conclude the suitable measurement basis for assets, this accounting theory is
used. The alternative way to fair value andhistorical cost is deprival value to market accounting.
This value can also be known as value or the firm to the value to the owner. The deprival worth
of the asset is based on the lower of the recoverable cost which isthe maximum of the selling
price. This accounting is realistic and more valuable. The resources are valued at the recoverable
cost if the expected profit does not occurred then it would not be replaced.
Realizable value:By selling the asset of the company the net amount which the company gets is
the realizable value. It can be evaluated by selling price of the asset minus any fees paid or
applicable. The cash amount which the company receives in the normal course of business is the
net realizable value (Ellul, et al., 2015).This measurement of accounting is the approximation of
the fair value as it evaluated both benefits of owing the inventory and the cots. For the on handed
inventory items this method of the accounting is appropriate as it lowers the cost and enforce the
conservative recordation of the inventory value assets.
Basis of accounting measurement for inventory
LIFO: The LIFO termed as last in first out. This is the process used for the measurement of
inventories and to place the accounting value on inventories. This theory described that the last
inventory item purchase is the first item that is to be sold (Houmes, et al., 2012).LIFO method is