Accounting Conceptual Framework 2014 states that measurement is the process of determining the monetary amounts at which the assets are to be recognized and carried in the balance sheet. This involves the selection of the basis of measurement. Several different measurement bases are employed to different degrees and in varying combinations in the statement of financial position to provide decision-useful information about entity's economic resources. Paragraph 100 of conceptual framework of 2014 identifies a selection of different measurement bases as given below.
- Historical cost
- Current replacement cost
- Realizable value
- Present value.
Many accountants believe that value is the characteristic of an asset that should be measured (Henderson et al. 2017). According to Framework 2014, an asset brings future economic benefits to the firm. Therefore, the value of an asset should be the value of its future economic benefits. Furthermore, the essential requirement of the Corporations Act of 2001 is that the statement of financial position and the notes should comply with the accounting standards and present a 'true and fair view' of the entity's financial position at the end of the financial year.
Further, the widely used historical cost has been subject to many criticisms. Some empirical research argues that historical cost reliability may be illusory (McDonald, 1968; McKeon, 1971). Revsine (1973) argues that current cost is an excellent approximation to value. Chambers (2006) supports realizable value. There is no consensus among empirical researchers on selecting the appropriate measurement basis of assets.