Fair Value vs. Historical

The group project consists of a research topic that should be sufficiently complex, appropriate for immediate accounting.

Your research findings will be three to five pages written report in APA 6th format.

Your research must include a minimum of three FASB codification citations along with other applicable accounting research

Topic: Fair Value vs. Historical

Fair Value

Fair value is the estimated value of an asset acquired by a company. It is the current value that the asset has in the market and that market value depends on several things. It depends on demand, availability, perishability, market, set of assumptions, etc.

Historical Cost

Historical Cost is a style of Accounting which is based off the original monetary value of an item. The Historical Cost is the actual price at which the transaction was done.

Some key differences between Cost vs. Fair Value are:

Depreciation on the fixed asset is getting calculated on Historical Cost while Impairment on the assets is getting derived based on their Fair Value. Depreciation schedules allow for a set distribution of the reduction of the value of an asset over its entire lifetime. Unlike Impairment is a reduction in the recoverable amount of a fixed asset (or goodwill) below its carrying amount. Historical cost derivation is easy and majorly readily available, even layman can derive the historical cost. Historical cost does not require any assumption. Unlike Fair Value, the calculation is highly complex and requires technical and niche skills. Fair value calculations need to be made by a professional and calculations require various assumptions based on which Fair Value can be derived. One of the financial statement utility is using the same for comparison. Historical cost-based Accounting will not give a better comparison as there can be different methods of depreciation, inventory recording, etc. However, Fair Value-based Accounting helps for there to be better comparability.



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