Current Value Accounting Technique

What is the current value accounting method?

Under the current value accounting method, all assets and liabilities are shown in the balance sheet at their current values. The difference in the value of net assets at the start and end of the year is known either as profit or loss. Significantly, determining current values is not a straightforward task.

Why is the current value accounting method used?

The current value accounting method is used because it provides a more accurate picture of a company's financial position. It takes into account changes in market conditions, which can impact the value of assets and liabilities.

How are assets and liabilities converted to their current values?

This can be done in a number of ways, depending on the type of asset or liability. Some assets, such as land and buildings, may be valued at their current market value. Other assets, such as cash and investments, may be converted to their current value by using an appropriate index. Liabilities may be converted to their current value by multiplying them by a conversion factor.

What are the differences between historical cost accounting and current value accounting?

Under historical Cost Accounting, assets and liabilities are shown at their original costs. The values on the balance sheet will not change over time. Under current value accounting, assets and liabilities are shown at their current values. Their values will change as market conditions change. This provides a more accurate picture of a company's financial position.

What are the benefits of using the current value accounting method?

The main benefit of using the current value accounting method is that it provides a more accurate picture of a company's financial position. It takes into account changes in market conditions, which can impact the value of assets and liabilities. This can be especially important in times of economic turmoil, when the market value of assets may be more volatile.