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Comments concerning certain Articles of the Regulation
(EC) No 1606/2002 of the European Parliament and of the
Council of 19 July 2002 on the application of
international accounting standards and the Fourth Council
Directive 78/660/EEC of 25 July 1978 and the Seventh
Council Directive 83/349/EEC of 13 June 1983 on accounting
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Measurement of the Elements of Financial Statements
99. Measurement is the process of
determining the monetary amounts at which the elements of the
financial statements are to be recognised and carried in the
balance sheet and income statement. This involves the
selection of the particular basis of measurement.
100. A number of different
measurement bases are employed to different degrees and in
varying combinations in financial statements. They include the
following:
(a) Historical cost. Assets are
recorded at the amount of cash or cash equivalents paid or the
fair value of the consideration given to acquire them at the
time of their acquisition. Liabilities are recorded at the
amount of proceeds received in exchange for the obligation, or
in some circumstances (for example, income taxes), at the
amounts of cash or cash equivalents expected to be paid to
satisfy the liability in the normal course of business.
(b) Current cost. Assets are
carried at the amount of cash or cash equivalents that would
have to be paid if the same or an equivalent asset was
acquired currently. Liabilities are carried at the
undiscounted amount of cash or cash equivalents that would be
required to settle the obligation currently.
(c) Realisable (settlement) value.
Assets are carried at the amount of cash or cash equivalents
that could currently be obtained by selling the asset in an
orderly disposal. Liabilities are carried at their settlement
values; that is, the undiscounted amounts of cash or cash
equivalents expected to be paid to satisfy the liabilities in
the normal course of business.
(d) Present value. Assets are
carried at the present discounted value of the future net cash
inflows that the item is expected to generate in the normal
course of business. Liabilities are carried at the present
discounted value of the future net cash outflows that are
expected to be required to settle the liabilities in the
normal course of business.
101. The measurement basis most
commonly adopted by enterprises in preparing their financial
statements is historical cost. This is usually combined with
other measurement bases. For example, inventories are usually
carried at the lower of cost and net realisable value,
marketable securities may be carried at market value and
pension liabilities are carried at their present value.
Furthermore, some enterprises use the current cost basis as a
response to the inability of the historical cost accounting
model to deal with the effects of changing prices of
non-monetary assets.
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