Using Fair Value Accounting, Questions and Answers

Question 1 What is the distinction between valuation and measurement? List down the advantages and disadvantages of using Fair Value Accounting. Accounting valuation is a process by which the value of a company is measured in terms of their assets and liabilities for financial reporting purpose. Andriessen (2003) had been explained the valuation by using the Rescher’s Value Theory in his article. Rescher (1969) used the term of â€Å"evaluation† to describe valuation as ‘a comparative assessment or measurement of something with respect to its embodiment of a certain value.’ Valuation can be achieved through several methods, with the ultimate goal to present the most precise picture of the company’s financial performance. Banks and lenders assessing the viability of a business and loan will provided based on how they are performing in the market. This process must include the most recent assessment possible of the company because its value may change significantly in just a short period. Campbell, N.R (1938) defined measurement as ‘the assignment of numerals to represent properties of material systems other than numbers, in virtue of the laws governing these properties.’ In accounting, measurement is the computation of economic or financial activities in terms of money or other measurable elements like hours to produce a product. Accounting measurement is used to compare and evaluate accounting data. Furthermore, measurement in accounting falls into the category of derivedShow MoreRelatedEssay on Financial Accounting Theory1727 Words   |  7 Pagesï » ¿QUESTION 1 a. Outline the objective and the principles of a theory that prescribes fair value accounting. Fair value accounting is to measure selected assets at fair value. 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