ABSTRACT
The AICPA and the FASB listed the following three concepts that they said could be considered as measurable attributes of assets of reporting entities alternative to acquisition cost for use in financial statements:
• Discounted future cash receipts and payments • Current buying prices • Current selling prices
(AICPA, 1973b, 41; FASB, 1976a, par. 390)
For a single asset, the amounts based on those three concepts and acquisition cost can all differ substantially. A reporting entity may have paid $50,000 to acquire a machine suitable for only its own operations a year ago. The issuers of its financial statements may think that in the future, before the machine wears out, it can be applied to materials, labor, and overhead costing $35,000 to make products that can be sold for $145,000. That could make the future cash receipts and payments from the machine that they predict, assuming that all of the cash receipts and payments pertain to the machine and the conversion efforts, discounted at 10 percent, equal to, say, $90,000. What the FASB considers the current buying price of the asset might have risen to $75,000 for reasons, for example, of supply and demand or increases in the costs of manufacture. In contrast, because the machine is
suitable for only the reporting entity’s operations, it may be able to sell the machine currently only for scrap at a current selling price of $1000.
