Advanced Financial Accounting: Fair Value, Financial Statements

This report delves into the core concepts of advanced financial accounting. It examines various methods for measuring financial elements, including historical cost, current cost, and realizable value, and present value. The report also explains the fair value method, its application, and how it relates to non-financial assets, along with the standard AASB 13. The analysis includes a discussion of the different methods used for measuring assets and liabilities, highlighting the implications of fair value and historical cost on financial reporting. It includes a comprehensive analysis of financial statements and how they are prepared, providing a detailed overview of the financial reporting process.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
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Table of Contents
Question 1........................................................................................................................................3
Question 2........................................................................................................................................3
Reference.........................................................................................................................................5

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Question 1
Financial Statements may be defined as comparative summary of the financial
performance of the company which is depicted by the statement of profit and loss account,
balance sheet of the company and cash flow statement. The methods which are used for the
measuring the elements of financial statements of a company are discussed below:
1. Historical Cost method: In this method all the assets of the company are measured on the
basis of fair value or the amount of cash or cash equivalents which was used at the time
of acquisition of the asset (Liang & Riedl, 2013). Similarly, liabilities are measured at
cash or cash equivalent which has to be incurred to satisfy the amount of liabilities.
2. Current Cost Method: In this case the assets are valued the amount of cash or cash
equivalent that needed to be paid in order to acquire the same or equivalent asset in
current situation.
3. Realisable Value: In this case the assets or liabilities are measured at the cash or cash
equivalents which the company will receive or bear after selling the asset or satisfying the
liability respectively.
4. Present Value: This method measures the assets and liabilities at present discounted
values of net cash inflows which the company expects from such an asset or liability.
Question 2
Fair value method refers to the estimated price at which assets or liabilities are transferred
between parties who have adequate knowledge about the market. As per the definition fair value
of an asset or liability can differ from market value as it is estimated on the basis of the parties
which are involved in the transactions (Hodder, Hopkins & Schipper, 2014). Fair value
measurement for a non-financial asset is measured by the economic benefits which the asset can

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generate with its best use and application. Fair Value Measurement is done with the help of
following the standard issued which is AASB 13.

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Reference
Hodder, L., Hopkins, P., & Schipper, K. (2014). Fair value measurement in financial
reporting. Foundations and Trends® in Accounting, 8(3-4), 143-270.
Liang, L., & Riedl, E. J. (2013). The effect of fair value versus historical cost reporting model on
analyst forecast accuracy. The Accounting Review, 89(3), 1151-1177.