【正文】 ssets and gains are not overstated and liabilities and losses are not overstated. Enhancing ? Comparability – Information about a reporting entity is more useful if it can be pared with a similar information about other entities and with similar information about the same entity for another period or another date. – Comparability enables users to identify and understand similarities in, and differences among, items. – Disclose the accounting polices and the change in them (Application of IAS 8)。s cost or value can be measured with reliability. 26 Measurement of elements of FS p182 ? The process of determining the moary amounts at which items will be stated in the financial statements. ? Four different basis of measurement – Historical cost – Current/replacement cost (current entry value) – Net realisable/settlement value (current exit value) – Present value of future cash flows (economic value, value in use） 27 Example 4, p186 IFRS 13 FV measurement ? Fair value – The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date 28 Capital maintenance concepts ? Profits can be realized only after an anization39。s capital has been maintained at a predetermined level. ? Financial capital maintenance (FCM) – Set aside profits in order to preserve the value of shareholders’ funds in ‘real terms’. – Money FCM /CPP FCM ? Physical /Operating capital maintenance (PCM, OCM) – Set aside profits in order to allow the business to continue to operate at current levels of activity. 29 Example ? Beginning – $100 / 1 unit inventory = $100/ capital ? Inventory was sold for $160. ? Inflation rate is 20%. ? Ending – Current cost of 1 unit inventory was $150. ? Profit under FCM and PCM? 31 Measurement base Accounting model FCM Historical Cost HCA Constant Purchasing Power CPPA PCM Current Cost CCA Historical cost accounting ? Advantage – recording assets at their original historical costs reduces subjectivity to a minimum – record gains until they are realised. 32 ? Disadvantage – asset values are outdated, particularly understated (inflation) – Ignore the effect of rising prices on moary items – profits are overstated (match historical cost with current revenue, inflation). If profits were distributed in full, the level of operations would have to be curtailed. – ROCE is overstated – Less parability Example 5, p184 Constant purchasing pow