FINANCE

Analysis of phase 3 and phase 4



Analysis of phase 3 and phase 4

Introduction

Phase 3: Measurement Bases used for element that are recognized in financial statement

According to international public standard accounting board, the measurement bases for assets and liabilities that are present in financial statement are historical or current. When an entity uses historical measurement tools, all the assets, and liabilities are enclosed in the financial statement at the value and characteristic of the past period (Bradbury & Baskerville,2008, 185-190). On the other hand, under current measurement bases assets and liabilities are enclosed by considering the impact of economic and financial environment of the current period.

In addition to this, measurement tools are normally used for either entry or exit values. An entry source replicate the thought of the entity of paying or receiving the amount payable (or receivable) for the acquisition (or assumption) of an asset and liability (Clark, 2010, 70-81). On the other hand, the exit base approach replicates the value that would be gathered by sailing of assets. In modern economy there is a comprehensive difference in the prices of entry and exit mainly because of companies gather assets from authentic and particular suppliers and thus are not allowed to sale their asset at the price at which the assets are purchased.

On the other hand, difference also arise if entities use selling price of their assets or liabilities, and this difference in amount is sometimes referred to as “day one” at the time when assets was initially identified (Grossi & Pepe, 2009, 251-256). However, entities while choice of using entry, exit value is entirely dependent on whether historic, or current measurement tools use transaction cost of assets or liabilities as entry or exit values. Meanwhile, measurement tools normally replicate the amount, which is normally obtained by entity after using the assets, for instance, the entity can consider the amount is use as the exit value mainly because entity normally looks forward to the amount that it can gather from the use of assets in future.

Moreover, measurement bases might implement any of the market or an entity-specific viewpoint. Measure base using the market viewpoint might be viewed as encouraging comparability of identical assets and liabilities that can be used by other entities, on the other hand, measurement tools using the entity specific point of view would be different among diversified entities even though if debated they might be of more specific value (Hongxia, 2005).. In normal circumstances, the prevailing diversification between both market and entity specific viewpoint is not easy to identify, for example, the cost price of the assets is generally entity specific mainly because it replicate the particular agreement status of the organization.

however, several objection has been raised by experts regarding the entity specific viewpoint of the entity, for instance, according to them this viewpoint clearly replicate the aim or hope of the organization and thus are one-sided and thus lack in verification and comparison. This is clearly understood, for example, as per the illustration provided ...