ACCOUNTING – A MEASUREMENT DISCIPLINE :
Accounting is a measurement discipline as it deals with the monetary measurement of inputs and outputs and as a result, it provides a basis for measuring the efficiency or performance of enterprise. Measurement means assignment of numerical values to specific attributes or characteristics of selected objects or events. It means that asset, liability or change in capital must have a relevant attribute that can be expressed in monetary units with sufficient reliability.
Value refers to the benefits to be derived from objects, abilities or ideas. Valuation is essentially an economist’s concept. Value is the utility of an economic resource to the person enjoying its use. In accounting, monetary unit is used for the value of an object, ability or idea. Value is measured in terms of money. If the value of the machine is taken as `2,00,000, it is only one type of value popularly called acquisition cost or historical cost.
Measurement is a broader concept than valuation. The concept of measurement includes valuation. Generally, four measurement bases are usually accepted in accounting parlance i.e. (i) Historical Cost; (ii) Current Cost; (iii) Realizable Value; and (iv) Present Value.
(i) Historical Cost: It means acquisition price, i.e., the amount of cash paid to acquire an asset. Liabilities are recorded at the amount of proceeds received in exchange of the obligation.
(ii) Current Cost: Assets are carried at the amounts of cash or cash equivalent that would have to be paid if the same or equivalent assets were acquired currently. Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently.
(iii) Realisable Value: As per this valuation basis, assets are recorded at the amount of cash or cash equivalent that would be realized by selling the assets in a routine manner. Similarly, liabilities are recorded at their settlement values.
(iv) Present Value: As per present value concept, an asset is shown in the balance sheet at the sum of present discounted net cash inflows that the asset is expected to generate in the normal course of business activities. Similarly, liabilities are disclosed at the present discounted value of future net cash outflows that are expected to be required to satisfy the liability in normal or due course of business activities.