Tutorial 4
Q1. Define measurement in the context of accounting and financial reporting. Why is measurement so important in accounting?
Q2. Discuss the current approach to measurement adopted by standard setters. Why have they adopted such an approach? What are the issues and problems associated with this approach?
Q3. Explain the arguments for and against using historical cost as a measurement base.
Q4. Explain the difference between current and replacement costs.
Q5. Explain the arguments for and against using fair value as a measurement base.
Q6. Identify factors that may influence the choice of measurement approach. Discuss how the measurement approach adopted impacts on the quality of accounting information produced.
Contemporary issue 4.2
The subprime lending crisis and reliable reporting
Questions
- In practice, which measurement base, historical cost or fair value, would provide the most relevant and reliable accounting information? Draw on the facts presented in the situation above, as well as your knowledge of the global financial crisis, to justify your response.
- Discuss the role of market stability and the financial business cycle in determining the relevance and reliability of the accounting information produced.