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• W260440045 abstract "FASB Concepts Statement no. 7 provides new guidance. Accountants use present value and cash flow information as a surrogate for fair value whenever an entity pays or receives a future stream of cash. Because this happens frequently in business, CPAs need guidance on using future cash flow as the basis for accounting measurements at initial recognition when making fresh-start measurements (see box) and with the interest method of amortization. To provide them with this guidance, FASB issued Concepts Statement no. 7, Using Cash Flow Information and Present Value in Accounting Measurements. Fresh-Start Measurements Fresh-start measurements are those a company uses following initial recognition of an asset or liability to determine a new carrying amount that is unrelated to previous amounts. For example, FASB Statement no. 115, Accounting for Certain Investments in Debt or Equity Securities, requires companies in each reporting period to make fresh-start measurements for securities classified as available-for-sale and trading, as the company's portfolio is marked-to-market. FASB Statement no. 121, Accounting for the Impairment of Long-Lived Assets to be Disposed Of, uses fresh-start measurements when an exception or trigger requires a company to recognize an impairment. SCOPE OF THE STATEMENT Concepts Statement no. 7 includes general principles that govern accountants' use of present value, especially when the amount of future cash flows, their timing, or both, are uncertain. This might happen when a business sells an asset and receives payments over time. The statement is limited to measurement issues (how much) and does not address recognition issues (when or if). It does not specify when fresh-start measurements are appropriate. Rather, FASB expects to decide whether a particular situation requires a fresh-start measurement or some other accounting response on a project-by-project basis. Concepts Statement no. 7 applies only to measurements at initial recognition, to fresh-start measurements and to amortization techniques based on future cash flows. CPAs should not apply it to measurements based on the amount of cash or other assets an entity pays or receives or on observations of fair values in the marketplace. If such transactions or observations exist, CPAs should base measurements on them, not on future cash flows (see exhibit 1). [ILLUSTRATION OMITTED] A CPA who uses accounting measurements at initial recognition and when making fresh-start measurements should try to capture the elements that would make up a market price (fair value) if one existed. The marketplace is the final arbiter of asset and liability values. The objective of using present value is to estimate the likely market price if one existed. The statement introduces an expected cash flow approach focusing on the explicit assumptions about the range of possible cash flows and their respective probabilities. This means a business would evaluate the cash flows it expected to receive from a particular asset and assign a probability to each one. Concepts Statement no. 7 describes techniques for estimating the fair value of liabilities, taking into account the entity's credit standing at initial recognition and when making fresh-start measurements, as required under GAAP. The statement also describes the factors that, if present, suggest CPAs should consider using the interest method of allocation. FAIR VALUE In accounting, fair value is the objective for most measurements at initial recognition and for fresh start measurements in subsequent periods. At initial recognition, the cash or equivalent amount a willing buyer and seller pays or receives (historical cost or proceeds) in an open market is usually assumed to represent fair value. Both current cost and current market value fall within this definition. Fair value is the most reliable measure of a transaction because it represents the epitome of objectivity--market forces set the amount and it is not subject to bias or measurement problems. …" @default.
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• W260440045 date "2001-10-01" @default.
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• W260440045 title "Future Cash Flow Measurements" @default.
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