Current Value Accounting

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Current Value Accounting and Its Influences
on Accounting Environment

Wei Cui


Current Value Accounting is one of the hot spots of accounting researches. Three prevailing current value accounting methods are present value method, current entry price method and current exit price method. All these methods aim at adjusting the book value of assets and liabilities so that the information will not be distorted by the changing prices. The theoretical roots of these methods are similar and they can be taken as options to deal with the issue of capital maintenance and income recognition under a changing price environment. It is found current value accounting affects accounting environment greatly in aspects of standard setting, financial analysis and academic researches. However, it is not the right time for current value accounting to dominate the accounting practice due to several weaknesses of it. It is recommended to mix present value method, current exit price method and current entry price method together as an organic entity to improve the adoptability of current value accounting. Index

1 The Prevailing Current Value Accounting Methods1
1.1 Present Value Method1
1.2 Current Entry Price Method2
1.3 Current Exit Price Method3
2 The Theoretical Roots of Current Value Accounting3
2.1 Changing Price Environment3
2.2 Capital Maintenance5
2.2.1 Concepts of Capital Maintenance5
2.2.2 A Capital Maintenance Model6
2.3 Motivation of Income Measurement8
3 The Influences of Current Value Accounting on Current Accounting Environment9 3.1 The Effects on Australia Accounting Standards9
3.1.1 Non-Financial Assets Valuation10
3.1.2 Financial Accounts Evaluation11
3.2 The Uses of Current Value Accounting Information in Financial Analysis12 3.2.1 Improving the Effectiveness of Decision Making12
3.2.2 Supporting Information Users in Financial Industries13 3.3 Influences on Accounting Research13
4 Challenges Faced by Current Value Accounting14
5 Conclusions15


Just like other social sciences, consensus can hardly be gotten among accountants. Tracing back of the accounting history, debates happened times and times and ended without any general accepted argument. Such a phenomenon was discussed so far as in1929 by Canning (Cited in Stewart, Claudio & Janek 1995). Current Value Accounting is one of the hot spots of those discussions. Although historical cost principle has been prevailing from the birth of accounting, doubts, suspicions and criticisms are endlessly put on it about its usages for decision making. As a result, researchers developed various ways to update the historical data together with their own opinions on income recognition. This article focuses on the introduction of current value accounting methods. The first part will introduce the prevailing current value accounting methods and followed by second part on the theoretical root of current value accounting. The third part will turn to the perspective of the practicability of current value accounting and how it is affecting current accounting environment including standard setting, financial analysis and accounting researches. Some challenges faced by current value accounting will be given and ended with recommendations to future research.

1 The Prevailing Current Value Accounting Methods

1.1 Present Value Method

From the perspective of an economist, the monetary amount of an asset can be explained as the present value of the future cash flows to be generated from the use of the asset. In order to get the economic value of an asset, the economist need to measure four variables which are expected net cash flows, appropriate discount rate and a time horizon of the cash flows. The current value of the asset can be calculated as the sum of all future cash flows discount by their corresponding discount factors and...
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