addition, estimates of value in use for an asset may inadvertently reflect the
effect of synergies with other assets in the group. Hence, determining the
value in use of an asset used in combination with other assets can be a costly
process and its complexity and subjectivity reduces verifiability. For these
reasons, value in use may not be a practical measurement basis for regular
remeasurements of such assets. However, it may be useful for occasional
remeasurements of assets, for example, when it is used in an impairment test
to determine whether historical cost is fully recoverable.
Using a current cost measurement basis, identical assets acquired or liabilities
incurred at different times are reported in the financial statements at the
same amount. This can enhance comparability, both from period to period for
a reporting entity and in a single period across entities. However, determining
current cost can be complex, subjective and costly. For example, as noted in
paragraph 6.22, it may be necessary to estimate the current cost of an asset by
adjusting the current price of a new asset to reflect the current age and
condition of the asset held by the entity. In addition, because of changes in
technology and changes in business practices, many assets would not be
replaced with identical assets. Thus, a further subjective adjustment to the
current price of a new asset would be required in order to estimate the
current cost of an asset equivalent to the existing asset. Also, splitting changes
in current cost carrying amounts between the current cost of consumption
and the effect of changes in prices (see paragraph 6.42) may be complex and
require arbitrary assumptions. Because of these difficulties, current cost
measures may lack verifiability and understandability.
Factors specic to initial measurement
Paragraphs 6.43–6.76 discuss factors to consider when selecting a
measurement basis, whether for initial recognition or subsequent
measurement. Paragraphs 6.78–6.82 discuss some additional factors to
consider at initial recognition.
At initial recognition, the cost of an asset acquired, or of a liability incurred,
as a result of an event that is a transaction on market terms is normally
similar to its fair value at that date, unless transaction costs are significant.
Nevertheless, even if those two amounts are similar, it is necessary to describe
what measurement basis is used at initial recognition. If historical cost will be
used subsequently, that measurement basis is also normally appropriate at
initial recognition. Similarly, if a current value will be used subsequently, it is
also normally appropriate at initial recognition. Using the same measurement
basis for initial recognition and subsequent measurement avoids recognising
income or expenses at the time of the first subsequent measurement solely
because of a change in measurement basis (see paragraph 6.48).
When an entity acquires an asset, or incurs a liability, in exchange for
transferring another asset or liability as a result of a transaction on market
terms, the initial measure of the asset acquired, or the liability incurred,
determines whether any income or expenses arise from the transaction. When
an asset or liability is measured at cost, no income or expenses arise at initial
recognition, unless income or expenses arise from the derecognition of the
6.76
6.77
6.78
6.79
Conceptual Framework
© IFRS Foundation A79