Measurement Concept
Measurement concept is associated with determination of
the value of an element of Financial Statement i.e. expense, asset, liability
or income. Value of the element may be
determined by number of ways known as measurement bases. These measurement
bases included historical bases, current cost bases, and realizable value bases
1. Historical Cost
First
measurement base is historical cost .The cost which was actually paid for the
acquisition of asset is known as historical cost. It is important to mention
that many elements are initially recognized at historical cost. Historical cost
measured widely used in accounting.
2. Current Cost
Second
measurement bases are current cost. This is the cost which the entity would be
required to pay in case of asset replacement, therefore this bases is also
known as replacement measurement bases. This measurement base is widely used in
management accounting.
3. Market Cost
Third
measurement base is market price or fair value. This concept is widely used to determine
the value at reporting data. In many situation management has option to present
the element at carrying cost or fair value at reporting data (balance sheet).
4. Present Value
These
are discounted value of future cash flows i.e. discounted value of cash inflow
from assets and discounted value of cash outflow required to settle the
liability.
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