Measurement (B6.6)

 Measurement with the Conceptual Framework

Measurement Basis Selection: 10 Key Points

1. Relevance: Measurement bases are chosen to provide information relevant to decision-making, reflecting the economic reality of transactions.  

   

2. Faithful Representation: Selected bases should accurately depict the substance of transactions and balances, avoiding bias or error.

3. Impact on Cash Flows: The basis should reflect an asset's or liability's influence on expected future cash flows.  

4. Measurement Uncertainty: Minimizing uncertainty is essential for reliable valuation and confidence in financial reporting.

5. Cost Constraints: The cost of obtaining and providing measurement information should not outweigh its benefits to users.  

6. Comparability: Measurement bases should allow users to compare financial statements across entities and periods effectively.

7. Historical Cost: Measures the original transaction cost, adjusted for depreciation, amortization, or impairment, and is widely used for financial assets at amortized cost.

8. Fair Value: Represents the market price of an asset or liability in an orderly transaction, reflecting current market conditions.  

9. Current Value Categories:  

   - Fair Value: Market-based, exit value.  

   - Value in Use: Present value of expected cash flows specific to the entity.  

   - Current Cost: Entry value, reflecting replacement cost at current market prices.  

10. Relevance of Bases for Specific Contexts:  

    - Historical Cost: Suitable for stability and tracking long-term trends but less relevant for derivatives or long-held assets.  

    - Fair Value: Relevant for trading and investment purposes but less suitable for production-use assets.  

    - Cost-Based Measures: Useful for assets in production as they align costs with sales margins.