The elements of financial statements are measured in different ways depending on their nature. Here are some common methods used for the measurement of each element:
Assets: Assets are typically measured at historical cost, which is the original cost of acquisition. Alternatively, assets can be measured at fair value, which is the estimated market value of the asset.
Liabilities: Liabilities are typically measured at the amount owed, which is the amount of the obligation to be paid in the future. This includes amounts owed to creditors, loans, and other financial obligations.
Equity: Equity is typically measured at historical cost, which is the original amount of investment made by the owner(s) of the business. Alternatively, equity can be measured at fair value, which is the estimated market value of the equity.
Revenues: Revenues are typically measured at the amount earned during a specific period, which is the sales price of goods or services sold.
Expenses: Expenses are typically measured at the amount incurred during a specific period, which is the cost of goods or services consumed or used.
Gains and losses: Gains and losses are typically measured at fair value, which is the estimated market value of the asset or liability at the time of sale or disposal.
In summary, the measurement of financial statement elements is typically based on either historical cost or fair value, depending on the nature of the element being measured.
