In preparation of financial statements, it is important that an appropriate method is adopted for asset measurement within the financial reporting framework. Asset measurement has been in existence and practiced for years immemorial, for Vehmanen(2013, p.132) measurements involve assigning numeral to objects or events in accordance to a set of rules or standards. The gradual sophistication in financial reporting and evolution of global investment markets together with the increasing knowledgeable investors and financial reporting users have gingered interest in asset measurement methods.
Organizations assets such as investments and marketable securities, fixed assets, ...view middle of the document...
Due to the deficiencies in HCA and the need to overcome the difficulties from CCP, CCA approach was introduced in 1975(Conrad, 2005, p.115). It requires that assets are valued at their current entry value or replacement cost or recoverable amount. The NRVA is based on the opportunity cost concept on economics (Elliott & Elliott, 2012, p. 156), it represents the value of an asset an organization expect to received when the asset is sold less reasonable estimate of amount associated to its disposal. A hybrid of this is the fair values model which refers to the best market value an asset can be obtained. On the other hand, Real time accounting involves incorporating adjustment for both CPP and CCA.
Asset measurement from the Stakeholders perspective
Over the years, considerable resources have been expended on the search for asset valuation models from the stakeholders’ perspective. The traditional Historical Cost model is besieged with various inadequacies such as non-adjustment for inflationary changes, out of date financial base data, understated cost of sales, non-comparability of year on year figures, etc. The model inability to adjust for inflationary changes may lead to undervaluation of asset as well as organization performance not appropriately assessed; this could result to distribution of false dividend (Diana, 2009, p.861). More so, Diana(2009, p.861) argues that subsequent change in real value of an asset “tends to make the historical cost inaccurate and thus inappropriate for making decisions”
However, unlike HCA, other asset measurement models are inherently subjective; they are based on estimates. Their values are not necessarily dependable as they are based on human judgment and not on verifiable historical records; they give room for an organization to produce better results which ignores the principle of conservatism. Specifically, the RCA is based on the replacement cost and could create...