How do you measure assets and liabilities?

• The dollar value assigned to assets and liabilities is called their carrying amounts or book values
• Alternative measurement systems include:
• Historical cost; i.e., original cost 
• Current cost  
• Market value  
• Present value
• Current cost and market values measures can be thought of as an item’s fair value
• Fair value is the amount 
• for which an asset could be exchanged, or a liability settled, 
• if the transaction was at arm’s length, and 
• occurred between knowledgeable willing parties

How do we know what measure to use?

• No universally accepted answer
• But financial information must be relevant and reliable so that it is useful for decision making
• Although it is common to leave assets at their cost price (or cost price adjusted for depreciation), entities are also permitted (and sometimes required) to revalue certain items to fair value

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