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Vikentia [17]
3 years ago
12

Financial statements are inexorably moving to a model where all assets and liabilities will be measured on the basis of fair val

ue rather than historical cost.
Required:
a. Discuss the conceptual differences between historical cost and fair value.
b. Discuss the merits and demerits of the two alternative measurement models.
c. What types of assets (or liabilities) more readily lend themselves to fair value measurements? Can we visualize a scenario where all assets are measured using fair value?
d. What are the likely effects of adopting the fair value model on reported income?
Business
1 answer:
amm18123 years ago
6 0

Answer:

Part a

historical cost = this is when we carry assets and liabilities at cost less accumulated depreciation or amortization.

fair value = this is when we carry assets and liabilities at amount that they could be exchanged for at arms length between market participants

Part b

<u>Historical Cost </u>

Merits : Value are easy to obtain since they are generated internally

Demerits : Is not very accurate.

<u>Fair Value</u>

Merits : Accurate method as it reflects market situation

Demerit : Costly as data and information is obtained externally

Part c

Assets : Investment Property and Financial assets measured through Profit and Loss

Liabilities : Bonds

Part d

Income is shown more accurately and eliminates biases form estimates.

Explanation:

Historical Method carries assets and liabilities at cost less accumulated depreciation or amortization while Fair Value Model carries assets and liabilities at amount that they could be exchanged for at arms length between market participants

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Companies HD and LD are both profitable, and they have the same total assets (TA), total invested capital, sales (S), return on
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Answer:

Option D is correct.

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Option C is also incorrect because there is no difference between the sales and total assets of both companies.

Option D is correct because the return on equity of the company LD is higher as the Net profit which is profit after interest and tax is higher than the profit after interest and tax of the company HD.

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7 0
3 years ago
Cecil has a credit card that uses the adjusted balance method. For the first 10 days of one of his 30-day billing cycles, his ba
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Answer:

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3 0
3 years ago
Fes Company is making adjusting journal entries for the year ended December 31, 2018. In developing information for the adjustin
anyanavicka [17]

Answer:

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1. Amount to report on the 2018 income statement as Insurance Expense

= $3,400

b. Amount to report on the December 31, 2018 balance sheet as Prepaid Insurance

= $3,400

2. Amount to report on the income statement as Supplies Expense

= $72,600

b. Amount to report on the balance sheet as Supplies = $8,400

3. The accounting equation effects of the adjustment for:

a) Insurance

Assets (Prepaid Insurance -$3,400) = Liabilities + Equity (Retained Earnings -$3,400 as Insurance Expense)

b) Supplies

Assets (Supplies - $4,600) = Liabilities + Equity (Retained Earnings -$4,600 in addition to Supplies Expense)

Explanation:

Adjusting Journal Entries:

a.

Debit Insurance Expense $3,400

Credit Prepaid Insurance $3,400

To adjust for expense for the year.

b.

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Credit Supplies $4,600

To adjust for used supplies.

Workings:

Supplies

Dec. 31, 2018 Balance   $13,000

Supplies on hand              8,400

Supplies used                 $4,600

Dec. 31 Supplies Expense Balance   $68,000

Supplies used                                       $4,600

Total supplies expense = $72,600

4 0
3 years ago
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