Question

explain how both exit price and current entry price accounting systems can be used to make decisions about retaining or selling assets

Answer 1

Market prices are more relevant for financial decision making. The difference between entry prices and exit prices indicates the

liquidity risk of investing in an asset. If this difference is high, then the operating risk of the asset should be lower as the value in

use becomes the primary income recovery mechanism.

The use of an exit price offers a number of advantages. First, it is current value. It allows users to focus on a value today, not

some historic price that may or may not be relevant under today’s conditions. Second, it is special and  It focuses on the asset or

liability at hand, rather than the price to purchase a generic item. finally, it has a level of independence by introducing, if only

hypothetically, an external party into the transaction. The value is based on its esimate of value, not the price pre determined.