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Correction
A measurement basis specifies how an amount is determined. It does not always measure the price at which an asset could be sold today.
Why the mistaken idea can seem reasonable
A price quote looks concrete, especially when a reported amount depends on estimates. But a recent quote may answer a different question from the one the financial statements must answer.
Compare the questions, not only the amounts
Harbor Design owns a printer used in its business. Its records show purchase cost less accumulated depreciation. A dealer offers to buy the printer. The recorded amount reflects cost allocated across periods; the dealer's offer reflects a possible sale. Neither amount becomes the required reporting amount merely because it is newer or easier to observe.
A measurement basis is the specified way of determining a reported amount. Identify the asset or liability, the reporting date, and the applicable accounting requirement before selecting a value. Different requirements may use cost-based amounts or current values.
Check your answer
State what the amount measures and why that basis applies. If your explanation only says “this is the latest price,” you have not established the reporting basis. A company cannot replace the required measurement with a preferred quote.
For the conceptual distinction, see the Financial Accounting Standards Board's measurement chapter, M4–M9. The framework explains measurement choices; applicable accounting guidance determines the treatment of a particular item.
When this mistake may appear
- Several values are available for the same asset or liability.
- The question asks for a reported amount, not necessarily a selling price.
Your work may contain this mistake if:
- Calls every updated amount a market value.
- Chooses the newest price without checking the required measurement.
- Compares amounts from different dates as though the dates do not matter.