Question Tag: Measurement

i) Measurement Objectives:
The objective of measurement is to select those measurement bases that most fairly reflect the cost of services, operational capacity, and financial capacity of the entity in a manner that is useful in holding the entity to account and for decision-making purposes. The selection of a measurement basis for assets and liabilities contributes to meeting the objectives of financial reporting in the public sector by providing information that enables users to assess:

• The cost of services provided in the period in historical or current terms;
• Operational capacity—the capacity of the entity to support the provision of services in future periods through physical and other resources;
• Financial capacity—the capacity of the entity to fund its activities.

ii) Bases of Measurement of Assets:

1. Historical Cost:
   • The consideration given to acquire or develop an asset, which is the cash or cash equivalents or the value of the other consideration given at the time of its acquisition or development.
2. Market Value:
   • The amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
3. Replacement Cost:
   • The most economical cost required for the entity to replace the service potential of an asset at the reporting date.
4. Net Selling Price:
   • The amount that the entity can obtain from the sale of the asset after deducting the costs of sale.
5. Value in Use:
   • The present value to the entity of the asset’s remaining service potential or ability to generate economic benefits if it continues to be used and the net amount that the entity will receive from its disposal at the end of its useful life.