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Four (4) bases of measuring assets and liabilities in accounting.

The conceptual framework identifies four possible measurement bases for assets and liabilities in accounting, namely:

  • historical cost
  • current cost
  • realizable value
  • present value

Historical cost.

Assets are recorded at the amount of cash or cash equivalent paid or the fair value of the consideration given to acquire them at the time of acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation.

Current cost.

Assets are carried at the amount of cash or cash equivalents required to acquire them currently. Liabilities are carried at the discounted amount currently required to settle them.

Realizable value.

Assets are carried at the amount which could be currently obtained by an orderly disposal. Liabilities are carried at their settlement value (the amount to be paid to satisfy them in the normal course of business)

Present value

Assets are carried at the present discounted value of the future net cash inflow that the item is expected to generate in the normal course of business, and liabilities at the present discounted value of the expected cash outflow necessary to settle them

7 thoughts on “Four (4) bases of measuring assets and liabilities in accounting.”

  1. Pingback: Current Ratio – meaning and formula. – ACCOUNTING CLASS

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