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er historical cost accounting

Fair value provides recent information about assets and liability unlike the historical cost which provides information that is outdated i.e. say balance sheet would be representing a pass transactions.

It deals with the value of asset unlike the historical cost which has to do with the allocation of cost; it discloses the purchase price of an asset and depreciates in the next year thereby ignoring the possibility that the current market value of asset may be either higher or lower.

Historical cost is base on the assumption that the amount which an asset is purchase would be remain the same over a period of time but in real life the amount an asset is bought might be less or more expensive in future depending on the current market condition and it is not usually adjusted after a financial statement is prepared thus it increases the value of tax payable.

Fair value reflects the certainty of the market condition while historical cost represents the outdated statement and uncertainty of the statement and the future cash flows.

Fair value state the asset generated in the financial statement while historical cost does not.

It represents a better economist transaction and tends to make awareness of basic and important information in the economy.

It useful because it provides useful current information about businesses because many businesses around the world tend to change their regulation at any point in time so it states the present condition and not a past event.

Some of the intangible asset generated outside the business environment is not reported in the historical cost statement while it does in the case of a fair value method.

How fair value accounting has improved information available to users

It enable individual users to be able to identify cash flows very easily

It provides a very clear view of share holders in a company

It gives users the ability to have an extra knowledge of financial accounting

It is clear transparent

It provides important information about asset and liability compared to a value base or market value which deals with just the industrial cost

It aid investors with insight market value and help with the useful information on financial accounting.

Another advantage of fair value accounting for measuring the interest is that it does reflects the current cost of debt and also allowing the interest rate and credit risk.

It reflects the current market condition

It gives details analyses of market value of assets and liabilities.

Arguments for and against the inclusion of fair value in financial reporting

Arguments for the inclusion of fair value in financial reporting

Arguments against the inclusion of fair value in financial reporting

Fair value which is the market to market value helps to identify the original cost of an asset because future cost cannot be determined accurately.

It is seen as a risk and unreliable method of accounting.

It provide more transparent to users because if asset and liability would be measure at the market value, it would help investors to avoid the losses that may result, therefore they would achieve a regulatory.