Chapter 11

Measurement systems

‘What is a Cynic? A man who knows the price of everything and the value of nothing.’

Oscar Wilde, Lady Windermere's Fan (1892), Wiley Book of Business Quotations (1998), p. 349.

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Learning Outcomes

After completing this chapter you should be able to:

  • Explore the importance of accounting measurement systems.
  • Critically evaluate historical costing.
  • Investigate the alternatives to historical costing.

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Chapter Summary

  • Measurement systems determine asset valuation and profit measurement.
  • The capital maintenance concept is concerned with maintaining the capital of a company.
  • Historical cost, which records items at their original cost, is the most widely used measurement system.
  • Current purchasing power adjusts historical cost for changes in the purchasing power of money (i.e. inflation).
  • Replacement cost is based on the cost of replacing assets.
  • Realisable value is based on the orderly sale value of the assets.
  • Present value is based on the present value of the discounted net cash inflows of an asset.
  • Modifications to historical cost are the valuing of inventory at the lower of cost or net realisable value or, in the UK, the revaluation of property, plant and equipment. ...

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