《Intermediate Accounting, 9th中级会计学 Nikolai》appendix_e.pptVIP

Objectives 1. Understand the difference between current value and general price level adjustments. 2. Explain the three alternatives to historical cost. 3. Understand issues related to the measurement of current cost, the adjustment of historical dollars for general price-level changes, and the purchasing power gain or loss on net monetary items. Current Value * Accounting for Changes in Prices A ppendix E Continued Objectives 4. Explain the conceptual issues relating to the alternatives to historical cost. 5. Be aware of the disclosure requirements that have existed for alternative disclosures, including the reasons for the elimination of the required disclosures. Current value adjustments account for changes in the value of individual assets and liabilities… Current Value …and not for the change in the value of the dollar. Current Value Current value is a general concept and may be measured in several ways, including— (1) An exit value, such as net realizable value. (2) The present value of future cash flows. (3) An input value, such as current cost. Current Value We will use current cost as a measure of current value because it is encouraged by FASB Statement No. 89. Four Alternative Concepts Historical cost Historical cost adjusted for changes in the general price level (historical cost ÷ constant purchasing power) Current value (current cost) Current value adjusted for changes in the general price level (current cost ÷ constant purchasing power) Current Cost Financial Statements Revenue — — — $2,000 — Cost of goods sold — — — (1,250 ) — Net income — — — $ 750 — Unreal. holding gain — — $ 250 (250 ) — Real. holding gain — — — 250 — Net income — — $ 250 $ 750 Step 1 2 3 4 5 Income Statements Continued A $250 increase due to current cost increasing. The increase in recognized in the period of sale. Current Cost Financial Statements Cash $3,000 $2,000 $2,000 $4,000 $2,750 Inventory —