Question

what are any benefits or detriments of asset valuation under current US GAAP treatment.

Answer 1

Under US GAAP assets are valued mark to market basis or fair value basis and the benefits or detriments of asset valuation under current US GAAP treatment are listed below:

Fair value accounting under US GAAP (“mark-to-market”) comprises of measurement and reporting of the assets and liabilities on the basis of their actual or estimated fair market prices.

Basic advantage of fair value accounting includes precise valuation of asset and liability on every reporting period basis in company's financial reports and hence provide true and fair view of the financials of the organisation. In this approach if the current market price of the assets company mark it to the market value in the financials also with the help of the techniques and accounting standards available in US GAAP also if in case of vice versa the company does mark the the value of an asset or liability to the market value to reflect any decrease in the market price of the assets or liabilities accordingly.

Historical cost concept generally create unrealized gains or losses for the assets held and liabilities outstanding, increasing or reducing net income, and in turns impact the equity, assets and liabilities in the balance sheet.

In spite of the above mentioned advantages Fair value accounting is more volatile than the historical cost concept due to high fluctuations in the market scenarios of the assets and liabilities. Conditions of the markets may fluctuate often and even become volatile at times.

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