Component 6

• Measurement


  The process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement
• Measurement bases


  • Historical cost (including amortised cost)
  • Current value (including fair value, value in use, fulfilment value and current cost)
• Historical cost

  • Measures provide monetary information about assets, liabilities and related income and expenses, using information derived, at least in part, from the price of the transaction or other event that gave rise to them
  • The historical cost of an asset when it is acquired or created is the value of the costs incurred in acquiring or creating the asset, comprising the consideration paid to acquire or create the asset plus transaction costs
  • The historical cost of a liability when it is incurred or taken on is the value of the consideration received to incur or take on the liability minus transaction costs
• Current value


  • Measures provide monetary information about assets, liabilities and related income and expenses, using information updated to reflect conditions at the measurement date
• Fair value


  The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date
• Value in use


  The present value of the cash flows, or other economic benefits, that an entity expects to derive from the use of an asset and from its ultimate disposal
• Current cost of an asset


  The cost of an equivalent asset at the measurement date, comprising the consideration that would be paid at the measurement date plus the transaction costs that would be incurred at that date
• Current cost of a liability


  The consideration that would be received for an equivalent liability at the measurement date minus the transaction costs that would be incurred at that date
• Factors to consider when selecting a measurement basis

  • Relevance - the relevance of information depends on its ability to affect the decision making of the users of financial statements
  • Faithful representation - the value recognised should be reliable and free from material error
  • Other considerations - comparability, verifiability, understandability and cost constraints may also affect preparers judgement in choosing between measurement basis