Current Issue In Accounting (Accounting Theory) Essay

Current Issue In Accounting (Accounting Theory) - Essay ExampleAccounting is considerably a measurement tool since it assesses the cling to and returns of the company in comparison to the exists. The measurement of fair values (FV) of assets is inclusive of numerous aspects, for example, market risk or credit risk. agree to Schroeder, Clark & Cathey (2010) the U.S GAAP standards take issue in specificity of the valuation models. Some corporations determine the fair value (FV) of their assets and liabilities as a net amount, and not them in their singularity. The Financial Accounting Standards Board (FASB) emphasizes that is imperative form for corporations to associate their measurements on their business strategy approach (Schroeder, Clark & Cathey 2010). Part A Measurement in Accounting Theory Measurement of financial statements encompasses the inclusion of method of accounting principles that will establish the true worth of the corporation of item (Schroeder, Clark& Cathey 2 010). Some of the regulators of financial institutions argue that measurement of all financial instruments can generate predicaments in assessing the true value of the commodities. As such, measurement in accounting entails a collection of theories that conform to particular items but not a general formula. According to Christian and Musvoto (2011), there is no single approach to measurement theory. They assert that measurement theory in accounting can exist in twain forms, which include Representation Theory of Measurement and Classical Theory of Measurement (Christian & Musvoto 2011). Representational measurement is what accounting standards are utilizing to in valuing the progress and items of an institution. Measurement models a. historic cost Historical Cost entails recording the financial assets in the market value that was given to acquire it during the purchase period. The value of the asset is recorded inclusive of the liabilities that were considered during the exchange a t their market values. The diachronic cost comprises of determination of the present value of the item after deducting the depreciation amount of the commodity over the days in use. The original value of the asset will be depreciated using two approaches either the straight line method or the reducing correspondence method (Walton & Aerts 2006). These depreciation adjustments will depend on the specification of the accounting principles applied by the company. The deductions on the assets of the institutions are made to the prior valuations and not the period values of the assets (Pratt 2011). The assets and liabilities held for trading functions is recorded under the market value method but the long-term financial products, for example, loans are measured under the historical cost approach. Advantages of Historical cost The asset is valued at the initial price and not at the market value thus making it easier to ascertain the usable life of the asset. Initial be are better at ascertaining the true value of the commodity and an individual can prudently determine the gains from it (Walton & Aerts 2006). In addition, historical cost is easily comprehensive than the alternative measurement models since it entails adjustments to the consideration value of the asset. Subsequently, it is not intricate to calculate the historical cost, unlike other models since most of the costs have been determined. Disadvantages According to Walton &