Current Value Accounting - 5283 Words

Current Value Accounting and Its Influences on Accounting Environment Wei Cui Abstract Current Value Accounting is one of the hot spots of accounting researches. Three prevailing current value accounting methods are present value method, current entry price method and current exit price method. All these methods aim at adjusting the book value of assets and liabilities so that the information will not be distorted by the changing prices. The theoretical roots of these methods are similar and they can be taken as options to deal with the issue of capital maintenance and income recognition under a changing price environment. It is found current value accounting affects accounting†¦show more content†¦and Where: the present value at time 0 the present value at time 1 = in come from the asset for the first year expected net cash flow in year j appropriate discount rate estimated life of the asset Although present value method is theoretically correct, due to the high subjectivity of variable estimation, ‘the practical importance of that kind of information seemed to have dropped from sight’. (Stewart, Claudio Janek 1995, p.83) 1.2 Current Entry Price Method Current entry price, known as replacement price, can be defined as ‘the amount of cash or other consideration that would be required to obtain the same asset or its equivalent’ (Ahmed Stewart 2002, p.422). Three issues can be identified from this conception. First, current entry price method complies with the â€Å"going concern† principle. With the consumption of assets, managers need to plan the fund to replace the current assets with new ones in order to keep the firm ordinarily running. Second, this method focuses on the maintenance of productive capacity of the assets. Replacement doesn’t mean to keep the physical image of an asset unchanged but to make the asset keep on producing a stable cash flow for the firm. At last, the current entry price measurement needs a reliable reference for the evaluation process. That is, there should be an active market for the firm to get the new assets at fair prices.Show MoreRelatedThe principle of historical cost i s still used in accounting when there is a large measure of agreement that it is inappropriate. Discuss.1226 Words   |  5 PagesSynopsis. Historical Cost Accounting is a traditional valuation method as it reflects only on the past cost of the asset, however in the contemporary business environment companies must remain flexible and transparent. This belief has lead to the creation of several other valuation methods, due to word constraints I have focused primarily on Fair Value Accounting as an alternative to Historical Cost Accounting. Although Fair value accounting is a theoretically superior valuation methodology, thereRead MoreAdvantages and Disadvantages of Hstorical Cost Accounting1241 Words   |  5 PagesHstorical Cost Accounting Advantages and disadvantages of historical cost accounting, alternatives to historical cost accounting 2.1 Introduction Accounting concepts and conventions as used in accountancy are the rules and guidelines by which the accountant lives. The historical cost accounting convention is an accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition. The historical cost accounting is the situationRead MoreIntermediate Accounting 14 Edition Test Bank – by Kieso1044 Words   |  5 PagesIntermediate Accounting 14 Edition Test Bank – By Kieso Follow Link Below To Get Tutorial https://homeworklance.com/downloads/intermediate-accounting-14-edition-test-bank-by-kieso/ Description: Chapter 1 Financial Accounting and Accounting Standards Chapter 2 Conceptual Framework Underlying Financial Accounting Chapter 3 The Accounting Information System Chapter 4 INCOME STATEMENT AND RELATED INFORMATION Chapter 5 BALANCE SHEET AND STATEMENT OF CASH FLOWS Read MoreAccounting Research: Advantages of Cash Flow1720 Words   |  7 Pagesdependent on accounting conventions and concepts/principles * Cash flow reporting satisfies the needs of all users better since cash flow is more direct with its messages. Some of the interested user parties are: * Creditors   -repayment of debts, overdue accounts * Management -cash flow reporting provides the type of information which decision should be taken re: relevant costs ( decision based on future cash flow) * Shareholders amp; Auditors -cash flow accounting and reportingRead MoreHistorical Cost and Fair Value1733 Words   |  7 PagesAbstract This paper is written for the accounting theory course as a course project. This paper discusses the differences between the historical cost accounting approach and the fair value accounting approach. The discussion will focus on the debate on using which accounting approach. We begin by stating the definitions of both concepts and discussing them thoroughly, then we state the main advantages of the two approaches followed by comparison between them. The last section of this paper discussesRead MoreHistorical Cost vs. Fair Value695 Words   |  3 PagesThe basic purpose of accounting is to provide information that is useful to investors, creditors and others in making rational economic decisions. One accounting issue that has been debated on a lot is the historical cost method versus the fair value measurement. The historical cost method has been the basis of GAAP accounting for the past decade but has slowly been disappearing. Today it is starting to be replaced by the fair value method of accounting. When choosing a valuation method, it seemsRead MoreAccounting Theory 41063 Words   |  5 PagesFair value or false accounting 1. How are assets and liabilities measured under IAS 39? Answer: According to IAS 39, Financial Instruments: Recognition and Measurement, financial instrument are to be stated at their ‘fair value’- defined as ‘the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction’. ‘If the market for a financial instrument is not active, an entity establishes a fair value byRead MoreContinuously Contemporary Accounting1692 Words   |  7 PagesIntroduction Over the past years there have been many accounting measurement systems developed to replace or serve as a supplement to historical cost accounting. However it is not possible, at present, to state which system, if any, is likely to replace the historical cost system. Perhaps the most notable system is Continuously Contemporary Accounting (CoCoA), proposed by Australian researcher, Raymond Chambers. Chambers quoted â€Å"†¦that thousands of shareholders had lost millions of dollars on securityRead MoreMeasuring Fair Value Accounting Standards1346 Words   |  6 PagesFair Value accounting is a measurement application to value assets and liabilities based on current transactions among buyers and sellers in the market. In other words, the price market participants pay or receive in an orderly transaction at a certain date. There are different techniques for measuring fair values depending on asset and market activity. It includes market approach, cost approach, and income approa ch. Financial Accounting standards (FAS 157) defines fair value as â€Å"the price that wouldRead MoreInadequacies of Accounting Ratios as Tools of Financial Analysis.1481 Words   |  6 Pagesdiscuss the inadequacies of accounting ratios as tools of financial analysis. ACCOUNTING POLICIES. It is difficult to use ratios to compare companies, because they very often follow different accounting policies. For example, one company may value stock under the LIFO principle, another may follow the FIFO principle. Similarly, one company may depreciate assets under the straight line method, while its competitors may be using reducing balance method. Also, one company may value their assets using the