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What are the four possible measurement bases for assets?


Mind Map outlining the four possible measurement basis for assets.
Mind Map by rachel_heap_02, updated more than 1 year ago
Created by rachel_heap_02 over 6 years ago

Resource summary

What are the four possible measurement bases for assets?
  1. Historical Cost
    1. A measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company.
    2. Current Cost
      1. A method of accounting in which assets are valued on the basis of their current replacement cost, and increases in their value as a result of inflation are excluded from calculations of profit.
      2. Net Realisable Value
        1. With regards to inventory, net realisable value (NRV) is the estimated selling price in the ordinary course of business minus any cost to complete and to sell the goods. NRV is one of the amounts considered when determining the lower of cost or market for items in inventory
        2. Present Value
          1. The current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows.
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