Accounting as a Measurement Discipline

Valuation Principle, Accounting Estimates


          Meaning of Measurement:-- Measurement is important aspect of accounting. Transaction and Events are measured in term of money.

          There are three basic elements of measurement :-

           1. Identification of Objects and Events to be measured.

           2. Selection of Standard or scale to be used.

           3. Evaluation of dimension of measurement standard or scale. in accounting we take money as a unit of measurement.


        There are four measurement base or valuation principles

       1. Historical Cost

       2. Current Cost

       3. Realizable Value

      4. Present Value


           Historical Cost :- It means acquisition price or purchase price. For example,      Rs.7,00,000/- paid to purchase the machine, here historical cost of machine is Rs.7,00,000/-.Under this principle, assets are valued at an amount paid or fair market value at the time of acquisition.

      Accordingly Liabilities are recorded at the amount of the proceeds received in     exchange for the obligation. Liability is recorded at the amount of proceeds received in exchange for an obligation.

           Current Cost :- Assets are recorded at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent asset has been acquired currently. Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to be settle the obligation currently.

        Realizable(settlement) value :- Under this principle, Assets are recorded or valued at amount which can be obtained if assets are sold in open market. Liabilities are carried at their settlement values; i.e. the discounted amounts of cash or cash equivalents expressed to be paid to satisfy the liabilities in the normal course of business.

            Present Value :- Under this principle, Assets are recorded at present discounted value of future net cash inflows that is expected to generate in the normal course of business.

         -Liabilities are recorded at present discounted value of future net cash outflows which are expected to be paid to settle liabilities in normal course of business.

          Measurement and valuation :- Value relates to benefit to be derived from objects, abilities or idea. According to economist, value is the utility (i.e. satisfaction) of economic resources to the person using it. According to accountant, value of objects, abilities or ideas is always measured in term of money.

         Accounting Estimates:- Transaction is measured at the amount which is paid for or by applying valuation principle. But there are some assets and liabilities which are not occurred or can not be measured by applying valuation principle like depreciation, provision for doubtful debts. But these assets or liabilities are necessary to record in books of accounts but for recording these items we need some value and for withdrawing such value we make reasonable estimates based on existing situation and past experience. Thus management makes various estimates and assumption of assets, liabilities, income and expenses as on the date of preparation of financial statement like depreciation, amortization of expenses, provisions of employee benefits etc.

         Process of estimation involves judgments based on information available.

         -Estimate requires revision if changes occur regarding circumstances on which the estimate was based. Change in estimates means difference arises between certain parameters estimated earlier and re-estimated during the current period or actual results achieved during current period.

Latest Blogs

Who is The Best Faculty For Accounts?

You need the Best Faculty For Accounts, CA Exam Preparation, so that you can pass your exam with Flying Colors without wasting a single minute of your Precious Time. A Good Faculty will not only help you clear your exam but also help you achieve the highest rank Possible, which proves to be surely a great advantage in Job Placement after completing CA.

Best Video Lectures for Operations Management & Strategic Management (OMSM) CMA Inter Group-2

OMSM Operations Management and Strategic Management. Get your Video Lectures Operations Management and Strategic Management from COC Education

Top Reviews

Introduction to Statistics for CA Foundation

Introduction to Statistics for CA Foundation Business Mathematics, Logical Reasoning and Statistics is designed as per latest CA Foundation syllabus for Paper 3 to provide a firm grounding in the principles, techniques and practice. The book adopts self-study approach and has been written in student-friendly manner. With a blend of conceptual learning and problem-solving approach, it offers in-depth understanding of the basic mathematical and statistical tools. #introductiontostatistics

Chapter X of Companies Act 2013

Chapter X of Companies Act 2013 The company shall place the matter relating to such appointment for ratification by members at every annual general meeting. ... Under the Act, the provisions for rotation of auditors in the listed Company & certain other class of Companies, have been provided for. #chapterxofcompaniesact2013

Relevant sections under the Companies Act, 2013 dealing with fraud and false statements

Relevant sections under the Companies Act, 2013 dealing with fraud and false statements The new parent corporate law “The Companies Act 2013” is mostly ... I am limiting my write-up to the provisions to the Act, and I request the readers to refer relevant rules, if any, before ... in the 2013 Act is the Section 447 dealing with “Punishment for fraud”. ... Section 448

What is Corporate Image

What is Corporate Image A corporate identity or corporate image is the manner in which a corporation, firm or business enterprise presents itself to the public. The corporate identity is typically visualized by branding and with the use of trademarks, but it can also include things like product design, advertising, public relations etc #WhatisCorporateImage

What is Energy Audit

What is Energy Audit An energy audit is an inspection survey and an analysis of energy flows for energy conservation in a building. It may include a process or system to reduce the amount of energy input into the system without negatively affecting the output. #whatisenergyaudit