Skip to main content

Money Measurement Concept


Money Measurement Concept in accounting, also known as Measurability Concept, means that only transactions and events that are capable of being measured in monetary terms are recognized in the financial statements.



Explanation



All transactions and events recorded in the financial statements must be reduced to a unit of monetary currency. Where it is not possible to assign a reliable monetary value to a transaction or event, it shall not be recorded in the financial statements.



However, any material transactions and events that are not recorded for failing to meet the measurability criteria might need be disclosed in the supplementary notes of financial statements to assist the users in gaining a better understanding of the financial performance and position of the entity.



Recognition Criteria



The recognition criteria defined by IASB and FASB require that the elements of financial statements (i.e. assets, liabilities, income and expense) must only be recognized in the financial statements if its cost or value can be measured with sufficient reliability. Therefore, an entity shall not recognize an element of financial statement unless a reliable value can be assigned to it.







In many cases however the preparers of financial statements are unable to arrive at a precise amount to be recognized in the financial statements and must resort to the use of reasonable estimates in arriving at an approximate value. The use of reasonable estimates is a very important component in the preparation of financial statements and as long as forming estimates do not involve a high degree of subjectivity and uncertainty they do not undermine the reliability of financial information.



Where a significant element of financial statement is not recognized because of the inability to measure its monetary value with sufficient reliability, it may be disclosed in the supplementary notes of financial statements to enhance the users' understandability and completeness of the presented financial information.





Examples of Application

◾Skills and competence of employees cannot be attributed an objective monetary value and should therefore not be recognized as assets in the balance sheet. However, those transactions related to employees that can be measured reliably such as salaries expense and pension obligations are recognized in the financial statements.

◾Where it is not possible to measure reliably the amount of settlement of a legal claim against the company, no liability is recognized in the financial statements. Instead, the nature and circumstances surrounding the lawsuit are disclosed in the supplementary notes to the financial statements if considered material.

◾IAS 38 Intangible Assets and ASC 350 Intangibles - Goodwill and Other require that internally generated goodwill shall not be recognized as an asset in the balance sheet. This is due to the difficulty in identifying and measuring the cost of internally generated goodwill as distinct from the cost of running the day to day operations of the business.



 However, IFRS 3 Business Combinations and ASC 805 Business Combinations permit purchased goodwill to be recognized as an asset in the financial statements since the cost of purchased goodwill is usually determinable objectively as the amount of consideration paid in excess of the value of other identifiable assets of the acquired business.

Comments

Post a Comment

Popular posts from this blog

Intercompany Eliminations with Journal Entries

Intercompany Eliminations Explained intercompany eliminations happen for business combinations. The whole thing kind of confuses me. Can you explain the process and the journal entries to record the intercompany eliminations? Answer: Remember that in a business combination, we are trying to eliminate any transactions between the parent and the subsidiary so that we only have transactions with 3rd parties left after our consolidating entries. So, let’s assume Company A owns Company B and A sells $120,000 of inventory to B. Let’s also assume that Company A gets a 40% margin on all sales and Company B has 30% of the inventory remaining at the end of the year. With this set of facts, they could ask you a wide variety of questions on the CPA exam. One of the tricks to solving problems involving intercompany eliminations is to understand the entries that A and B would book in these cases. One of the other tricks is understanding the relationship between cost and margin percentage. ...
Post a Comment
Read more

Procure to Pay (P2P) Process Folow with Journal Entries

Procure to Pay process flow. 1. Requester: Request for goods & the same goes for an approval 2. PR is created & routed for approval 3. Once approved, PO is created. 4. Sourcing activities like, Choosing the right Vendor, Payment info happens meanwhile, 5. PO is routed for approval 6. PO is sent to the supplier.& Vendor signs the agreement (Payment terms) 7. Supplier will send the goods along with Invoice.(PO Number mentioned) 8. Good received & GRN entry is made. 9. Invoice is sent to the AP team 10. AP team process the Invoice (3 way match) - GL coding will be automatically pulled. 11. process for Payment Few Journal Entries examples are as followed. 1. Goods Received Ware House Dr        Inventory a/c             Cr                    GRNI a/c 2. Inv. Regis...
Post a Comment
Read more

End to End Journal Entries for Purchase Orders

  Creating end-to-end journal entries for purchase orders involves recording the financial transactions associated with the entire procurement process. Here's a step-by-step breakdown of journal entries related to the purchase order process: 1. Request for Purchase: When a department identifies the need for goods or services and generates a Request for Purchase (RFP) or Purchase Requisition, no financial transactions are recorded at this stage. 2. Vendor Selection and Quotation Comparison: No financial transactions are recorded during the vendor selection or quotation comparison stage. 3. Purchase Order Creation: Once the Purchase Order is created and approved internally, the following journal entry is made: Copy code Debit: Purchase Order Liability Credit: Accounts Payable This entry recognizes the commitment to pay the vendor for the goods or services ordered. 4. Sending the Purchase Order: When the approved Purchase Order is sent to the vendor, there is no financial transacti...
Post a Comment
Read more