Discuss the concept of Cost v/s Fair value with reference to Indian Accounting Standards?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 ROSHNI asked over 3 years ago

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 CA Sandeep Bohra answered almost 3 years ago

Dear Friend, **Cost v/s Fair value** Cost basis: The term cost refers to cost of purchase, costs of conversion on other costs incurred in bringing the goods to its present condition and location. Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances, at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business. Fair value: Fair value of an asset is the amount at which an enterprise expects to exchange an asset between knowledgeable and willing parties in an arm’s length transaction. Indian Accounting Standards are generally based on historical cost with a very few exceptions: AS 2 “Valuation of Inventories” – Inventories are valued at net realizable value (NRV) if cost of inventories is more than NRV. AS 10 “Accounting for Fixed Assets” – Items of fixed assets that have been retired from active use and are held for disposal are stated at net realizable value if their net book value is more than NRV. AS 13 “Accounting for Investments” – Current investments are carried at lower of cost and fair value. The carrying amount of long term investments is reduced to recognise the permanent decline in value. AS 15 “Employee Benefits” – The provision for defined benefits is made at fair value of the obligations. AS 26 “Intangible Assets” – If an intangible asset is acquired in exchange for shares or other securities of the reporting enterprise, the asset is recorded at its fair value, or the fair value of the securities issued, whichever is more clearly evident. AS 28 “Impairment of Assets”– Provision is made for impairment of assets. On the other hand IFRS and US GAAPs are more towards fair value. Fair value concept requires a lot of estimation and to the extent, it is subjective in nature.

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Data?1494421730 rohit awasthi answered over 3 years ago

Hii Roshni **Cost v/s Fair value** Cost basis: The term cost refers to cost of purchase, costs of conversion on other costs incurred in bringing the goods to its present condition and location. Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances, at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business. Fair value: Fair value of an asset is the amount at which an enterprise expects to exchange an asset between knowledgeable and willing parties in an arm’s length transaction. Indian Accounting Standards are generally based on historical cost with a very few exceptions: AS 2 “Valuation of Inventories” – Inventories are valued at net realizable value (NRV) if cost of inventories is more than NRV. AS 10 “Accounting for Fixed Assets” – Items of fixed assets that have been retired from active use and are held for disposal are stated at net realizable value if their net book value is more than NRV. AS 13 “Accounting for Investments” – Current investments are carried at lower of cost and fair value. The carrying amount of long term investments is reduced to recognise the permanent decline in value. AS 15 “Employee Benefits” – The provision for defined benefits is made at fair value of the obligations. AS 26 “Intangible Assets” – If an intangible asset is acquired in exchange for shares or other securities of the reporting enterprise, the asset is recorded at its fair value, or the fair value of the securities issued, whichever is more clearly evident. AS 28 “Impairment of Assets”– Provision is made for impairment of assets. On the other hand IFRS and US GAAPs are more towards fair value. Fair value concept requires a lot of estimation and to the extent, it is subjective in nature. Thanks

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