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ACCA Strategic Professional · Strategic Business Reporting (International) · The applications, strengths and weaknesses of the accounting framework

Under the Conceptual Framework, which statement about the measurement of an asset or liability is correct?

The Conceptual Framework does not prescribe one basis for all items. The measurement basis is selected by considering the relevance of the information it provides and whether it faithfully represents the item, taking account of how the item contributes to future cash flows and of cost constraints.

  1. AHistorical cost must be used for all items because it is the most reliable basis
  2. BFair value must be used for all items because it is the most relevant basis
  3. CThe selection of a measurement basis considers the relevance of the information it produces and whether it faithfully represents what it purports to representCorrect
  4. DThe measurement basis is chosen by reference to the legal form of the item

Explanation

The Conceptual Framework says no single measurement basis is always best, and selection considers relevance, faithful representation, and cost constraints, including how the item contributes to future cash flows and the characteristics of the item. Mandating one basis for everything (the first two options) contradicts this.

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