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What is the objective of present value when used to determine an accounting measurement for initial recognition purposes?



A. Estimate fair value.
B. Capture the value of an asset or liability in the context of a given entity.
C. Estimate value in use.
D. Calculate the effective-settlement amount of assets.
Asked by Eliana, Last updated: Mar 27, 2020

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2 Answers

Christian Jackson

Christian Jackson, Content Developer, Austin

Answered Feb 13, 2019

The correct answer to this question is A. The objective of present value measurements is to estimate fair value by distinguishing the economic differences between sets of future cash flows that may vary in amount, timing, and uncertainty.

A present value measurement includes five elements: estimates of cash flows, expectations about their variability, the time value of money, the price of uncertainty inherent in an asset or liability, and other factors (e.g., liquidity or market imperfections).

Fair value encompasses all these elements using the estimates and expectations of participants in the market. Two approaches to present value include traditional or expected cash flow (ECF).

 

John Smith

John Smith

Answered Sep 08, 2016

Estimate fair value.-the objective of present value measurements is to estimate fair value by distinguishing the economic differences between sets of future cash flows that may vary in amount, timing, and uncertainty. a present value measurement includes five elements: estimates of cash flows, expectations about their variability, the time value of money, the price of uncertainty inherent in an asset or liability, and other factors (e.g., liquidity or market imperfections). fair value encompasses all these elements using the estimates and expectations of participants in the market.
 

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