Question

​Conceptually, how should current liabilities be valued? In practice, how are current liabilities valued? What justification is there for allowing current practice not to follow the conceptual guidance?

Answer 1

Those Liabilities that are payable within the immediate next 12 months or payable within the company's opearting cycle whichever is longer are termed as Current Liabilities.They are Short term Liabilities of a business.

They should be valued using the present value of future cash flows required to extinguish the debt but are recorded using the future maturity amount.

Justification:

It is because they are payable on demand or within a period less than a year so present value techniques of measurement are not used generally as it is assumed that there are no major fluctuations of value of money in short term.

Current Liabilities are recorded at cost which is their full maturity value and Fair value mesurement is generally not adopted in case of current liabilities