Question

Name an alternative to historic cost for measuring asset values and explain why the alternative method would be used.

Answer 1

An alternative to historical cost method for measuring assets value is fair value method. Fair value is used for valuing assets like trading securities and assets held for resale. The most common fair value method used is market value. Trading securities value should reflect market value since they are meant for short term basis and held for trading purpose. The difference in book value and fair value is adjusted through income statement .Similarly assets held for resale are valued at lower of carrying value or fair value. In case of assets held for resale, the asset should meet the conditions to be reclassified as assets held for resale to be valued at fair value.