A measurement basis explains what an amount represents. Equipment cost less accumulated depreciation does not answer the same question as a current offer to buy the equipment. The first reflects an allocated acquisition cost; the second describes a proposed transaction today.
An entry-price perspective concerns acquiring an asset or incurring a liability. An exit-price perspective concerns selling an asset or transferring or settling a liability. Identify the item, measurement date, inputs, and whether the assumptions concern market participants or the particular company.
Different balances can use different bases
A company may report equipment using cost less depreciation and an investment using fair value under the applicable requirements. Fair value uses a market participant perspective. The balance-sheet total is not therefore the price at which the entire business could be sold.
United States generally accepted accounting principles (US GAAP) determine the required basis for a particular item. A preference for a higher or lower amount does not select the basis. Estimates can be useful, but the method, inputs, and uncertainty need explanation. Precision in a spreadsheet does not establish that the amount measures the right thing.
Put the concept to work
Understand this concept
- Distinguish historical and current measurement attributes, including entry and exit perspectives, without reducing all current measurement to one market price.
Analyze this concept
- Analyze a reported amount by identifying its attribute, unit of account, market or entity perspective, date, inputs, transaction costs, update frequency, uncertainty, and resulting statement effects.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Measurement basis — Understand
To analyze this concept: Required. The learner must identify what attribute an amount represents before comparing or recomputing it.
- Recognition — Understand
To understand this concept: Helpful. Measurement supplies an amount for an item whose statement role and unit must be identified.
Lessons
Worked examples and cases
Practice
Common mistaken ideas
Sources
More specific topics
Show 5 more more specific topics
Related concepts
Use this idea next
- Balance sheet limitation — Understand
Required level here: understand. Required. Measurement is one of the three sources of limitation.
- Fair value hierarchy — Analyze
Required level here: analyze. Required. The hierarchy describes inputs to a required or permitted fair-value measurement.
- Fair value measurement objective — Analyze
Required level here: analyze. Required. The learner must identify why fair value applies and what attribute the amount represents.
Show 4 more next steps
- Fair value option for debt — Understand
Required level here: analyze. Required. Fair value is a different measurement basis, not an amortized-cost adjustment.
- Initial measurement — Understand
Required level here: understand. Required. The opening amount is interpretable only when the learner knows what attribute it measures.
- Measurement basis — Analyze
Required level here: understand. Required. The learner must identify what attribute an amount represents before comparing or recomputing it.
- Monetary unit assumption — Understand
Required level here: understand. Helpful. The unit alone does not identify the attribute or date represented by an amount.