AA201 – Accounting Measurement

and Disclosure

Introduction to AA201

S1

Introduction to accounting measurement

Measurement – 1 of 3

PLEASE DISPLAY YOUR NAMES

Anil Shukla
Office: S3-B1C-118
Tel: 6790-5006
Email: anilshukla@ntu.edu.sg
Others: See Edventure Site

No “.” between my first and surname

Seminars

Gp 4: Wed 2.30 (SR9); Fri 2.30 (SR10)

Gp 6: Wed 8.30 (SR10); Fri 8.30 (SR20)
Gp 8: Wed 10.30 (SR10); Fri 10.30 (SR20)

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 Project Discovery (PD)

Content
 Concept (rather than rules)
 Contracting framework
 Broad-based

Pedagogy (Method of instruction)
 Students: “discovery”; active participation
 Lecturer: facilitation
 Seminars

PD (cont)

Class participation is very important
 10%
 Self-learning; discovery

Advice: always come to class prepared

Term quizzes (2): open book

Exam: open book

AA201: Course syllabus

 Introduction
 Measurement concepts and issues,
measures of ‘income’
 Recognition and measurement of: asset,
liability, equity, revenue & expense
 Gap in GAAP

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 AA201: Course syllabus

 S1 to S3 - Recognition & measurement issues

 S4 to S10 – Assets
 S11 to S14 – Liabilities
 S15 – Equity
 S16 to S19 – Revenue
 S20 to S22 – Expenses
 S23 – GAAP

AA201 – Class Format

 Seminars
 23 x 2 hours (twice per week, with 3
exceptions)

(please refer to course outline pp. 5-11)

AA201 – Materials
 Seminar handouts
 Power-point slides (Edventure)
 Seminar outline (Edventure)
 Articles (Edventure)
 Text
 A Practical Guide to Financial Reporting
Standards (Singapore) by Ng Eng Juan (NEJ)
(4th edition – 2009)
 Required & supplementary readings

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AA201 – Assessment

Class 10% Individual

Participation
Term Quiz 25% Individual
Group Project 15% Team of 5/6
Final Exam 50% Individual

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AA201 – Other Class Matters

 Attendance –
 important for class participation
 Team formation –
 5/6 in a group. (by S2 please)
 Pls appoint a team leader to receive e-mails etc.
 Seating arrangement –
 Groups sit together
 Class Representative –
 To handle admin matters.
 Any Volunteers?
 Blackboard sites –
 main & tutorial group
 Assignments – to be presented by groups. Entire team to
be present.
 Please see Edventure for details 11

Introduction to Accounting
Recognition, Measurement & Disclosure

Recognition
- The process of formally recording &
reporting an item in the financial
statements of a company
- Criteria:
 meet the definition of an element
 be measurable
 be relevant
 be reliable
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 Introduction to Accounting
Recognition, Measurement & Disclosure
Measurement
- To be discussed, as this is the focus of
this and next 2 seminars.

Disclosure
- The accounting standards will often
require that certain information be
disclosed either in the main body of or in
the notes to the financial statements.
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Concepts of Measurement
 Why do we need measurement in
Accounting?

 What is measurement?

 How to go about measuring?

 Problems of measurement in Accounting

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Why do we need measurement in Accounting?

Questions: 1
Stakeholder Effort/contribution Reward

Shareholder

Manager

Vendor

Customer

Lender

Government

Auditor
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 Why do we need measurement in Accounting?

 Information asymmetry between

stakeholders

 Adverse Selection: information advantage

 Moral Hazard: unobservability of manager’s

effort

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What is measurement?

 Measurement is the assignment of

numerals to represent the magnitude of an
attribute of a phenomenon.

 Phenomenon: object or event to be measured i.e. table

 Attribute: characteristic or quality of the phenomenon that
is to be measured i.e. table’s dimensions
 Magnitude: measurement scale i.e. inches, meters etc.

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How to go about measuring?

 Identify relevant phenomenon
 Identify relevant attribute of the phenomenon
 Find a reliable way to assess the magnitude of
the relevant attribute of the relevant
phenomenon (i.e., measurement scale)
 Direct Observation – the phenomenon’s
attributes are compared with known measuring
units
 Estimation may often be needed – substitute
with a different phenomenon, a different
attribute, or both.
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 Relevant Substitute
Phenomenon (P1) Phenomenon (P2)

Direct Observation Estimation

Relevant
Attribute A1P1 A1P2
(A1)

Estimation Estimation

Substitute
Attribute A2P1 A3P3
(A2)

Concept of Measurement (cont’d)

What is the significance of this Matrix?

Observation of acceptable measurements can be
misleading

Without knowledge of what is relevant attribute
or phenomenon/ substituted attribute or
phenomenon, one may think substitute is
relevant

Without knowing what is relevant, estimation
may be useful in some cases and not so in others

Estimation might not be abandoned when it no
longer produces reliable results
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Question 2
Relevant Substitute
Phenomenon Phenomenon (P2)
(L&B Currently Owned) (Another Similar L&B)
Direct Observation Estimation

Relevant
Attribute 1 3
(Fair Value)

Estimation Estimation

Substitute
Attribute 2 4
(Other)

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Measurement of Past Price of an Inventory
Relevant Substitute
Phenomenon Phenomenon
Direct Observation Estimation
Relevant Price Paid $100
Attribute
(past price) Cost of Parts = $ 50
Labor = $ 40
--------
Total Cost $ 90

Estimation Estimation
Substitute Price to be Paid
one year from
Attribute
now = $100 or
(others) Raw Material = $20
PV of $100 = Labor = $50
90.9 Overheads = $20
--------
Total = $90 22

Problems of measurement in
Accounting

Measurement in Accounting

 What attributes are we measuring?

 What measurement unit are we using?

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Measurement in Accounting: Attribute

Question 3

Phenomenon (Object) Attribute

Property, plant & equipment

Inventory

Accounts Receivable

Short-term investments

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 Measurement in Accounting
 Unit of measure?
 Nominal $ - dollar terms
 Purchasing power – value of a particular
monetary unit in terms of the goods and
services that can be purchased with it.

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Measurement in Accounting
 Problems:
 Mixed attributes, and
 Mixed unit of measure

⇒ Question 4 (Is aggregation (e.g. total assets) meaningful?)

⇒ Question 5 – (Is the asset attributes of “exit price” better
than “WDHC”)

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If you wish to measure the current value of an

asset, which of the following is not a relevant
attribute of the asset, but a substitute attribute?
a. Present value
b. Current cost
c. Realizable value
d. Replacement cost
e. Fair value

0% 0% 0% 0% 0%

a. b. c. d. e.27

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Next Seminar –
Concepts & Measures of Income

 An important topic – your level of

understanding will be greatly enhanced
if you did preliminary readings!
 Think through questions & be prepared
to try in-class exercise.

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