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  Money Measurement

Introduction to Money Measurement

As we describe before that a resource will only be considered as an asset and involved on the statement of financial position if it can be calculated in monetary terms, along with a appropriate degree of reliability. A number of resources of a business, though, do not meet this standard and so are not include from the statement of financial position. Consequently, the range of this statement is restricted. There have been irregular attempts to compute and report resources of a business that are generally not included from the statement of financial position so as to give a more comprehensive picture of its financial position. Though, these attempts always fail the reliability test.

Not reliable measurement can lead to variation in reporting and can create uncertainty among users that in turn undermines the credibility of the financial statements.

Some main resources of a business that generally defy reliable measurement are now discussed.

Goodwill and brands

Some intangible non-current assets are identical to tangible non-current assets: they contain a separate and clear identity and the cost of incurring them can be reliably measured. Instances generally involve trademarks, patents, copyrights and licences. Though, another intangible non-current asset are relatively different. They do not have a clear and separate identity and reflect a hotchpotch of attributes that are part of the spirit of the business. Goodwill and product brands are frequently instances of assets that lack a clear and separate identity.

The word 'goodwill' is frequently used to cover various attributes like the skill of employees, the quality of the products, and the relationship with customers. The word 'product brands' is also employed to cover several attributes, like the quality of the product, the brand image, the trademark and so on. In which goodwill and product brands have been produced internally through the business, it is frequently hard to determine their cost or to measure their current market value or even to be clear that they really available. Though, they are not included from the statement of financial position.

While they are obtained by an arm's-length transaction, though, the problems of doubt about their presence and measurement are resolved. If goodwill is attained while taking over other business, or if a business obtains a specific product brand from other business, these items will be individually recognized and a price agreed for them. Within these conditions, they can be considered as assets (for accounting purposes) through the business which attained them and involved on the statement of financial position.

To agree a price for attaining goodwill or the meaning of the product brands is some form of valuation must occur and this increases the question as to how it is done. Generally, the valuation will be relies on estimates of future earnings from holding the asset, a process which is fraught with problems. However, some specialist businesses now available that is ready to take on this challenge.                                    

Human resources

To place a monetary measurement on the human resources of a business attempts have been completed, but with no any real success. Though, there are specific limited conditions where human resources are computed and reported in the statement of financial position. These conditions generally take place with professional football clubs. When football clubs cannot own players, they can own the rights to the services of players. In which these rights are acquired by compensating other clubs for releasing the players from their contracts, an arm's-length transaction occurs and the amounts paid give a reliable basis for measurement. The meaning of this is that the rights to services can be considered as an asset of the club for accounting purposes (certainly, assuming the player will also bring benefits to the club).                

Monetary stability

While using money like the unit of measurement, we generally fail to identify the fact that it will change in value over time. In the UK (United Kingdom) and during much of the world, though, inflation has been a persistent difficulty. The meaning of this is that the value of money has declined in relation to other assets. In the before years, high rates of inflation have resulted in statements of financial position that were ready on a historic cost basis reflecting figures for assets which were much lower than if current values were used. Rates of inflation have been comparatively low in recent years and so the disparity among historic cost values and current values has been less pronounced.

However, it can still be important and has added fuel to the debate regarding how to measure asset values on the statement of financial position. It is to this subject that we now turn.

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