Financial Reporting · Recognition and measurement

Measurement Bases: Historical Cost and Current Value

Updated 11 October 2026 · Fact-checked

A measurement basis is the way you put a monetary figure on an asset or liability. The Conceptual Framework gives two groups: historical cost, and current value (fair value, value in use, fulfilment value and current cost). You choose the basis that gives the most useful information, given relevance and cost.

Understand Measurement Bases: Historical Cost and Current Value

Every number in the statement of financial position comes from a measurement basis. The Conceptual Framework for Financial Reporting says there are two broad groups: historical cost and current value. The basis you use changes the figures, so it changes profit and equity too.

Historical cost uses the price of the transaction when the item was acquired or incurred. For an asset, it is the cost paid plus transaction costs. For a liability, it is the value of what was received minus transaction costs. It is then updated over time, for example for depreciation, impairment and amortisation. It is simple and easy to verify, but it can become out of date.

Current value measures use information updated at the measurement date. There are four you must know:

Fair value: the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. It is a market-based, exit price. IFRS 13 sets out how to measure it.
Value in use: for an asset, the present value of the cash flows the entity expects to derive from using it and from its final disposal. It is entity-specific. It is used in IAS 36 impairment tests.
Fulfilment value: for a liability, the present value of the cash the entity expects to have to pay to meet the obligation, plus any other resources it must transfer. It is the liability-side equivalent of value in use, and it is entity-specific.
Current cost: the cost today of an equivalent asset, being the price that would be paid now plus transaction costs. For a liability, it is the consideration that would be received now for taking on an equivalent liability, minus transaction costs. It is an entry price.

A quick way to remember the split: fair value is an exit price from a market view. Current cost is an entry price. Value in use and fulfilment value are entity-specific and based on your own expected cash flows. The Framework says the choice depends on relevance and faithful representation, balanced against cost. Different standards use different bases, and one set of financial statements usually mixes several.

Key rules to remember

Historical cost (asset): Cost paid + transaction costs, then adjusted for depreciation, amortisation and impairment; Carrying amount = cost less accumulated depreciation and impairment losses.
Fair value (IFRS 13): Price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; Exit price. Market-based, not entity-specific. Transaction costs are not included in the fair value figure.
Value in use: PV of expected future cash flows from continuing use and final disposal of the asset; Entity-specific. Discount at a pre-tax rate in IAS 36.
Fulfilment value: PV of the cash and other resources the entity expects to transfer to meet the liability; Entity-specific. Applies to liabilities only.
Current cost: Cost today of an equivalent asset (price + transaction costs); Entry price. For a liability, consideration receivable today for taking on an equivalent liability, less transaction costs.
Present value: PV = Cash flow ÷ (1 + r)ⁿ; Used for value in use and fulfilment value.

How to solve Measurement Bases: Historical Cost and Current Value questions

Use this method for any question asking you to identify, compare or choose a measurement basis.

1Identify whether the item is an asset or a liability. Value in use applies to assets, fulfilment value to liabilities.
2Read the wording for clues: 'price in an orderly transaction' or 'market participants' means fair value.
3Check whether the figure is entity-specific (own cash flows, own plans) or market-based. Entity-specific points to value in use or fulfilment value.
4Check whether it is an entry price (cost to buy today, so current cost) or an exit price (sale proceeds, so fair value).
5Check whether the figure comes from a past transaction and has not been updated. That is historical cost.
6If asked to recommend a basis, link it to relevance, faithful representation, and the cost of providing the information.
7For calculations, do the arithmetic cleanly: discount cash flows year by year, or apply cost less depreciation, and state the basis in your answer.

Quickest way: Entry, exit or own-plans test

When to use it: Use in Section A and Section B objective questions where you must name or match a basis in under a minute.

Look at the past: a price actually paid then, not updated, is historical cost.
Look at today's buying price: current cost.
Look at today's selling price in the market: fair value.
Look at the entity's own expected cash flows, discounted: value in use for an asset, fulfilment value for a liability.
Eliminate options that mix asset and liability terms, then pick the one that fits every word.

Common mistakes in Measurement Bases: Historical Cost and Current Value

Treating fair value as the price the entity would pay to buy the item.
Students mix up entry and exit prices.
Fix: Fair value is an exit price: what you would receive to sell an asset or pay to transfer a liability. The buying price is current cost.
Using value in use for a liability.
The two terms sound alike and both use present values.
Fix: Value in use is for assets. The liability equivalent is fulfilment value.
Saying value in use is a market figure.
Students assume all current values come from the market.
Fix: Value in use and fulfilment value reflect the entity's own expected cash flows and plans. Only fair value is market-based.
Saying historical cost never changes after purchase.
The word 'historical' suggests a fixed number.
Fix: Historical cost is updated for depreciation, amortisation, impairment and, for liabilities, interest accrual. The original transaction price is the starting point.
Claiming current value is always better than historical cost.
Students think up-to-date numbers must be more useful.
Fix: The Framework balances relevance against cost and faithful representation. Current values can be costly and subjective. Historical cost is cheaper and easier to verify.
Deducting transaction costs from fair value.
Students confuse fair value with fair value less costs of disposal.
Fix: Fair value itself does not include transaction costs. Fair value less costs of disposal, used in IAS 36, deducts them.

Worked examples

Example 1

An entity bought a machine on 1 January 20X1 for $120,000 including transaction costs. It is depreciated straight-line over 10 years with no residual value. At 31 December 20X3 an equivalent new machine would cost $150,000, and a similar three-year-old machine could be sold in the market for $90,000. State the carrying amount at 31 December 20X3 under historical cost and give the fair value and the current cost basis figures.

Show the solution

Historical cost: annual depreciation = $120,000 ÷ 10 = $12,000.
Accumulated depreciation after 3 years = $12,000 × 3 = $36,000.
Carrying amount = $120,000 − $36,000 = $84,000.
Fair value is an exit price, so use the market sale price of a similar three-year-old machine: $90,000.
Current cost is the cost today of an equivalent asset. An equivalent asset that is three years old would be needed, so the entity would take the new price of $150,000 and reduce it for three years of use: $150,000 × 7/10 = $105,000. This is stated on the assumption that the new machine has the same 10-year life and no residual value.

Answer: Historical cost carrying amount: $84,000. Fair value: $90,000. Current cost (equivalent used asset): $105,000.

Example 2

An entity has a legal obligation to restore a site. It expects to pay $200,000 in two years. The discount rate is 10%. Another company has offered to take over the obligation for $185,000 today. Calculate the fulfilment value and say which figure is the fair value (transfer price) of the liability.

Show the solution

Fulfilment value is the present value of the cash the entity expects to pay to settle the obligation itself.
PV = $200,000 ÷ (1.10)² = $200,000 ÷ 1.21.
$200,000 ÷ 1.21 = $165,289 (rounded to the nearest dollar).
Fair value of a liability is the price paid to transfer it to a market participant in an orderly transaction. The offer of $185,000 is that transfer price.
The two differ because fulfilment value reflects the entity's own expected cash flows, while the transfer price reflects what the market requires, including compensation for taking the risk.

Answer: Fulfilment value: $165,289. Fair value (transfer price): $185,000.

Exam tips

In objective questions, spot the key phrase first: 'orderly transaction' means fair value, 'expected cash flows from use' means value in use, 'equivalent asset today' means current cost.
If a question asks which bases are entity-specific, the answer is value in use and fulfilment value. Fair value is not.
In a written answer on choosing a basis, name relevance, faithful representation and cost, and give one advantage and one limitation of each basis you discuss.
Always show the discounting step in value in use or fulfilment value calculations. Method marks matter in Section C, even though objective questions are all or nothing.
Link the topic to standards you are asked about: IAS 36 uses value in use and fair value less costs of disposal, IAS 16 allows cost or revaluation (fair value), and IFRS 13 defines fair value.

Practice questions from Recognition and measurement

Measurement Bases: Historical Cost and Current Value in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Measurement Bases: Historical Cost and Current Value: frequently asked questions

What is the difference between historical cost and current value?

Historical cost is based on the price of the original transaction, updated only for items like depreciation and impairment. Current value uses information at the measurement date, such as market prices or updated cash flow estimates. Current values are more up to date, but can be more costly and subjective.

What is fair value under IFRS 13?

Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. It is an exit price and is market-based. It does not depend on the entity's own plans for the item.

What is the difference between value in use and fulfilment value?

Both are present values of the entity's own expected cash flows. Value in use applies to assets and covers cash flows from using and finally disposing of the asset. Fulfilment value applies to liabilities and covers the cash and resources the entity expects to transfer to settle the obligation.

How do you choose a measurement basis under the Conceptual Framework?

You consider which basis gives the most useful information to users. That means looking at relevance, faithful representation and how the item contributes to future cash flows, then weighing the cost of providing the information. No single basis is best for every item.