Corporate Accounting and Auditing · Conceptual Framework

Measurement Bases in the Conceptual Framework

Updated 10 October 2026 · Fact-checked

A measurement basis is the way an asset or liability is given a rupee amount. The Conceptual Framework has two groups: historical cost and current value. Current value includes fair value, value in use (fulfilment value for liabilities) and current cost. Pick the basis that gives the most relevant and faithful information at reasonable cost.

Understand Measurement Bases

Every item in a balance sheet needs a rupee figure. The measurement basis tells you how to get that figure. The Conceptual Framework describes two families: historical cost and current value.

Historical cost uses information from the price of the transaction that created the asset or liability. It does not reflect changes in value, except for impairment of an asset or a liability becoming onerous (para 6.4). It is simple, cheaper to measure, generally well understood and often verifiable (para 6.69).

Current value uses information updated to the measurement date. It is not derived, even in part, from the price of the original transaction (para 6.10). Para 6.11 lists three current value bases: fair value, value in use for assets and fulfilment value for liabilities, and current cost.

The three current value bases differ on one point: whose view and which market. Fair value is the price that would be received to sell an asset (or paid to transfer a liability), using market-participant assumptions. Value in use is the present value of cash flows the entity expects from using the asset and disposing of it, using entity-specific assumptions. Fulfilment value is the same idea for a liability. Current cost is the cost today of an equivalent asset, including transaction costs that would be incurred.

An important split: current cost, like historical cost, is an entry value, because it reflects the market in which the entity would buy the asset or incur the liability. Fair value, value in use and fulfilment value are exit values (para 6.21). Unlike historical cost, current cost reflects conditions at the measurement date.

The choice is not fixed. Para 6.85 says sometimes a current value basis for the balance sheet and a different basis for the related income and expenses in profit or loss gives more relevant, more faithful information. Factors in paras 6.43 to 6.76 guide the choice, and they apply to recognised assets and liabilities (para 6.47).

Key rules to remember

Historical cost carrying amount (asset): Historical cost (including transaction costs), to the extent unconsumed or uncollected, and recoverable; Not updated for value changes, except impairment.
Fair value carrying amount (asset): Price that would be received to sell the asset, without deducting transaction costs on disposal; Exit value; market-participant assumptions.
Value in use carrying amount (asset): PV of future cash flows from use and ultimate disposal, after deducting PV of transaction costs on disposal; Entity-specific assumptions; the text notes it may not be practical for regular remeasurement (para 6.75).
Current cost carrying amount (asset): Current cost (including transaction costs), to the extent unconsumed or uncollected, and recoverable; Entry value; cost of an equivalent asset at the measurement date.
Current cost of a liability: Consideration that would be received for an equivalent liability at the measurement date − transaction costs that would be incurred; Entry value for liabilities.
Value changes under current cost: Change in prices = holding gain or holding loss; Under current cost, profit or loss shows current cost of consumption plus holding gains and losses separately. Under historical cost, value changes are not recognised except impairment.

How to solve Measurement Bases questions

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

1Identify whether the item is an asset or a liability. Liabilities use fulfilment value instead of value in use.
2Name the family: historical cost or current value.
3If current value, name which one: fair value, value in use or fulfilment value, or current cost.
4State what it measures: transaction price, exit price to market participants, entity-specific present value, or entry price today.
5State the effect on profit or loss: value changes, impairment, consumption, interest.
6Apply the selection factors: relevance, faithful representation, verifiability, cost, and how the item contributes to future cash flows.
7Conclude with a clear recommendation or comparison, in a short table-like list of points.

Quickest way: Entry or exit, market or entity

When to use it: Use for MCQs that ask you to match a description to a basis or spot the odd one out.

Ask: is it based on the original transaction? If yes, it is historical cost.
If not, ask: is it an entry price (what we would pay now)? That is current cost.
If it is an exit price, ask whose assumptions. Market participants means fair value; the entity's own expectations means value in use or fulfilment value.
Check the keyword: present value of cash flows from use points to value in use; holding gain points to current cost.

Common mistakes in Measurement Bases

Saying fair value and value in use are the same.
Both are exit values and both can involve discounting.
Fix: Fair value uses market-participant assumptions; value in use uses entity-specific assumptions.
Calling current cost an exit value.
Students link all current values to selling prices.
Fix: Current cost is an entry value, like historical cost. It reflects the market where the entity would buy.
Saying historical cost never changes.
Overstating that it ignores value changes.
Fix: It does not reflect value changes except impairment of an asset or a liability becoming onerous.
Deducting transaction costs in fair value of an asset.
Mixing fair value with net realisable value.
Fix: Fair value of an asset is the price received without deducting transaction costs on disposal. Value in use does deduct the PV of disposal costs.
Using value in use for a liability.
Forgetting the liability counterpart.
Fix: Use fulfilment value for liabilities.
Writing that one basis is always best.
Wanting a single rule to memorise.
Fix: The choice depends on the factors; different bases may even be used for the balance sheet and profit or loss (para 6.85).

Worked examples

Example 1

Distinguish between historical cost and current value measurement bases, and list the current value bases.

Show the solution

Historical cost uses information derived at least partly from the price of the transaction that created the item.
It does not reflect changes in value, except impairment of an asset or a liability becoming onerous.
Current value uses information updated to the measurement date and is not derived from the original transaction price.
Current value bases: fair value; value in use for assets and fulfilment value for liabilities; current cost.
Historical cost is usually simpler, cheaper and often verifiable.

Answer: Historical cost is transaction-based and not updated except for impairment or onerous liabilities. Current value is updated to the measurement date and includes fair value, value in use or fulfilment value, and current cost.

Example 2

Compare fair value, value in use and current cost of an asset.

Show the solution

Fair value: price that would be received to sell the asset, using market-participant assumptions; transaction costs on disposal not deducted; exit value.
Value in use: present value of cash flows from using and finally disposing of the asset, after the PV of disposal costs; entity-specific assumptions; exit-side measure.
Current cost: cost of an equivalent asset at the measurement date, including transaction costs that would be incurred; entry value.
Profit or loss effect: under current cost, price changes appear as holding gains and losses; under fair value and value in use, changes appear in income and expenses from changes in those values.

Answer: Fair value is a market exit price, value in use is the entity's own present value of cash flows, and current cost is the entry price of an equivalent asset today including transaction costs. Fair value and value in use are exit values; current cost is an entry value.

Exam tips

Learn the one-line definition of each basis and whether it is entry or exit; MCQs test exactly this.
In written answers, compare on the same points: what it measures, whose assumptions, effect on profit or loss.
Quote the paragraph themes such as verifiability and cost of historical cost, but cite paragraph numbers only if sure.
Remember that value in use becomes fulfilment value for liabilities.
Mention that more than one basis can be used for balance sheet and profit or loss when it gives better information.

Practice questions from Conceptual Framework

Measurement Bases 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: frequently asked questions

What are the measurement bases in the Conceptual Framework?

Historical cost and current value. Current value covers fair value, value in use (fulfilment value for liabilities) and current cost.

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

Fair value uses the assumptions of market participants and is the price that would be received to sell the asset. Value in use is the present value of cash flows the entity itself expects from using and disposing of the asset.

Is current cost an entry value or an exit value?

It is an entry value, like historical cost. It reflects the prices in the market where the entity would acquire the asset or incur the liability. Fair value, value in use and fulfilment value are exit values.

How do I choose a measurement basis?

Consider which basis gives the most relevant information and a faithful representation, how verifiable the measure is, and the cost of producing it. The Framework also allows different bases for the balance sheet and for related income and expenses.