Financial Accounting Analysis and Reporting

Running head: ADVANCE FINANCIAL ACCOUNTING
Advance Financial Accounting
University Name
Student Name
Authors’ Note

ADVANCE FINANCIAL ACCOUNTING
2
Table of Contents
Measurement concepts in association to Historical cost and Fair value....................................3
Challenges and Benefits of Using Historical Value and Fair Value..........................................5
Recognition of practices of valuation and the non-financial assets: Intangibles and PPE.........9
Assessment whether PPE and intangibles are stable among the three companies...................13
Opinion regarding free choice between historical cost and fair value accounting..................13
References................................................................................................................................15

ADVANCE FINANCIAL ACCOUNTING
3
Concepts of measurement in relation to Historical cost and Fair value
The concept of fair value is defined by International Financial Reporting Standard
(IFRS) 13 (Warren and Jones 2018). Fair value may be defined as the market value at which
assets is sold or a transfer of liability is done within the market at a particular date. The
measurement of fair value can be done for any kind of liabilities and assets of a company as
per the policy of the company. Whenever the company is following fair market valuation, the
characteristics of the particular assets or liabilities are also taken into consideration as some
times potential buyers and seller also takes such factors into consideration. Some of such
factors can be the condition of the asset, position of the asset and restriction during the sale or
purchase of the asset. Furthermore, the goal that is related to the measurement of the fair
value in both circumstance are similar for projecting the price within which a systematic
transactions that are being taken in the market related to the asset or in scenarios of transfer
of the asset takes place among the market participants during the measurement date within
the current assessment scenario. Specifically, the “IFRS” would be appropriate during the
time when the other “IFRS” permits the enumeration of the fair value or the declarations in
accordance to the measurement of the fair value that has been established on the fair value or
else the declarations in accordance to assessments (ref: paragraph 5 IFRS 13).
As per “Para 16 of the IFRS 13”, measurement of fair value estimates that the
transactions which have taken place are either in the standard market for assets and liabilities
or in the most beneficial market where the liabilities or assets can be sold in the absences of
principle market. More as per para 34 of the standard states the general principles which
company has to follow in case of financial and non-financial liabilities of the business or
even the business’s equity is assumed to be transferred to the potential buyers at the

ADVANCE FINANCIAL ACCOUNTING
4
measurement date. Therefore it can be concluded that fair market valuations can be done by
any business in accordance with the policies of the company (Henderson et al. 2015).
In order to understand the measurement process under historical cost method, the first
thing which is needed to understand is that the concept of historical costs. Historical costs is a
value measurement concept which is used in accounting in which assets are shown in the
balance sheet at its nominal or original cost at which the company had acquired the asset.
The key business transactions that are recorded in the accounting aspect of a company are
registered at cost. It is seen that historical expense can be recognised by gaining access to the
trade documents or the foundation of the purchase. Additionally, the historical expenditure
has the drawback of not fundamentally imitating the factual fair value of a distinct asset that
can deviate from the acquisition expense of a precise time frame. In accordance to the
accounting standards, the historical cost is in need for various modifications within the advent
of time. Primarily, the historical cost is different from any other sort of costs that are
allocated to a distinct asset that is even known as the cost of replacement or the adjustment of
the inflation expense (Williams 2016). Conversely, the historical cost can be observed to be a
core theme for the purpose of asset registration even though the fair value is substituting the
similar sorts of the assets. The continuing historical cost substitution by the system of the fair
value assessment is established on the argument that the historical cost replicates a
conventional outlook of a company.
Conversely, the selection among the utilisation of the historical cost process and the
fair value method of accounting can be granted to be a vastly debatable matter of worry.
Conversely, the disagreement has been arising during the decade of 1990s. Contrasting to the
most of the standards of accounting, “IFRS” provides a selection among the historical cost
prices and the fair value method of accounting for an assorted assets that are non-financial in
nature. Furthermore, the “IFRS” even asks for the requirement of an ex-ante obligation that