Fundamental Accounting Principles and Asset Valuation

Fundamental Accounting Principles

• Basis: The van should be evaluated by its purchase price as it has been purchased for use and not for sale.
• Accrual: November 1, 20XX [2,400 / 12 = 200] [200 x 2 = 400]. For November and December: 200 + 200.
• Uniformity: To change the method, there needs to be a valid reason, such as altered circumstances that prompted the company to choose the original criteria. You should also explain the reasons for the change and its impact on the annual accounts, applying it to all elements with the same features.
• Prudence: Until the completion of the sale, it is not reflected in the accounts.
• No Compensation: Balances must be included in two different accounts: a right to receive and a payment obligation. This avoids loss of data by not reflecting everything in a single account.
• Materiality: You can omit the calculation and recording of depreciation for an item with only 3 days remaining for the completion of the exercise.

Valuation Endpoints and Criteria

• Cost: Assets (purchase price and cost of production) and Liabilities.
• Fair Value: The amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction.
• Net Realizable Value: The amount available in the market for the sale of an asset in the ordinary course of business, after deducting estimated costs of sale and necessary completion costs.
• Present Value: Estimated cash flows to be received or paid in the ordinary course of business, discounted at a suitable rate.
• Value in Use: The present value of expected cash flows from the use of an asset, updated using an appropriate discount rate.
• Cost of Sales: Costs directly attributable to the sale of an asset that the company would have incurred if it had not decided to sell.
• Amortized Cost: The amount at which an asset or liability was initially valued financially.
• Transaction Costs Attributable to an Asset or Liability: The amount directly attributable to the purchase or sale of a financial asset, or the issuance or assumption of a financial liability, which would not have been incurred if the transaction had not occurred.
• Book Value: The net amount by which an element is recorded in the balance sheet. For assets, this corresponds to the initial value.
• Residual Value: The estimated amount the company could currently obtain from the sale of an asset after deducting costs of sale, considering its expected age and condition at the end of its useful life.