The Fair Value And Historical Cost Essay example

2033 Words Nov 22nd, 2014 null Page
The fair value and historical cost are fundamental approaches of accounting. They bring up major changes in the financial status of the entities. The main objective of financial reporting is to provide information on assest and liabilities about the particular entity, which helps it to make useful financial decision. The fair value (FV) is a common among accounting and finance professionals. Today the majority of the investors and creditors prefer FV. On the other hand these policy and decision makers lost interest in historical cost (HC) because it became old fashioned and doesn’t keep up with current market. Nowadays everyone wants to see the actual values on the balance sheet, “one of the major financial statements that gives a snapshot of a company’s financial position at a specific point of time.” On the basis of financial statement an investor make his/her final decision whether to invest in the company or not. Despite being a subjective approach, fair value provides relevant, up-to-date, and a faithful representation of assets and liabilities. The fair value is a widely used concept in accounting. It was originally defined by the Security Exchange Commission (SEC). Under Generally Accepted Accounting Principles (GAAP), the FV of an asset is the amount at which that asset could be bought or sold in a current transaction between willing parties. On the other side of the balance sheet, the FV of a liability is the amount at which that financial obligation could…

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