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An amount can change after the company first records it. Subsequent measurement asks what the applicable guidance requires between initial recognition and a later reporting date.
The answer may preserve the opening amount, allocate it across periods, adjust it for new estimates, test it for impairment, accrue interest, or remeasure it using current inputs. A later date does not by itself require current fair value.
Identify the kind of update before calculating it
Northline initially records its machine at $110,000. Assume a five-year useful life, no residual value, straight-line depreciation, and no impairment indicator. The first year's allocation is:
$110,000 initial amount ÷ 5 years = $22,000 depreciation
$110,000 initial amount − $22,000 depreciation
= $88,000 year-end carrying amount
Depreciation allocates cost. It does not estimate the machine's current selling price. Calling the $88,000 amount a market value would change the meaning of the calculation.
Ask what could change the reported amount
Different guidance calls for different updates. A company may need to:
- allocate cost through depreciation or amortization;
- accrue interest using the required rate and opening carrying amount;
- revise an estimate using current supportable evidence;
- test an asset or asset group for impairment; or
- remeasure an item at fair value or another current amount.
State the reporting date and the event that triggers the work. Then identify the unit of account, starting carrying amount, required basis, new evidence, calculation, and financial-statement effects.
Keep later evidence in the right period
New information may change an estimate without proving that the earlier amount was wrong. An error arises when the company used available information incorrectly or omitted information it should have used. A changed condition can instead create a new accounting event. Use the applicable Topic and the dates of the evidence and condition to determine the treatment.
FASB states in its Conceptual Framework that a later reporting-date amount may retain, adjust, or replace an initial amount. The framework does not prescribe the update for a specific asset or liability. Use the applicable ASC Topic for that rule.
Connect the update to reporting
Reconcile the opening amount, every recognized change, and the ending carrying amount. Then determine how the company presents the ending balance and related income or equity effects, and what it must disclose about the method, inputs, changes, and uncertainty.
Put the concept to work
Understand this concept
- Distinguish a later allocation, estimate-based adjustment, impairment test, and current remeasurement without treating every change as a new market value.
Analyze this concept
- Analyze how the applicable guidance, reporting date, evidence, estimates, and measurement basis change or preserve an item's carrying amount and related income or equity effects.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Accounting estimate — Understand
To analyze this concept: Helpful. Many later measurements depend on supportable estimates whose revision must be distinguished from an error.
- Carrying amount — Understand
To understand this concept: Helpful. The learner should identify the amount reported before applying a later adjustment or test.
- Initial measurement — Understand
To understand this concept: Required. A later measurement begins with the recognized item and its supported opening amount.
Show 1 more prerequisites
- Subsequent measurement — Understand
To analyze this concept: Required. The learner must distinguish the kind of later update before applying its calculation and evidence requirements.
Practice
Sources
Standard references
Related concepts
Show 1 more related concepts
Use this idea next
- Subsequent measurement — Analyze
Required level here: understand. Required. The learner must distinguish the kind of later update before applying its calculation and evidence requirements.