Subsequent measurement of financial assets

When those financial assets (like cash, bank accounts, accounts and notes receivable etc) are initially recognized, at every balance sheet date they need to be again measured. They need to have a true and fair value on the balance sheet and it may not be the value it was initially recognized with. This is called measuring and there are specific terms for certain types of assets.

On initial recognition, the instruments are either measured at the transaction price or at the present value of future payments discounted at the market rate of interest for a similar debt instrument. The last one applies to all instruments which are considered as financing assets, i.e. when the payment is deferred beyond normal business terms. Now, this is initial recognition, however, as said before, the instruments need to be measured at every balance sheet date.

Subsequent measurement is basically the same, all current instruments are measured at undiscounted cash or consideration to be received and all non-current instruments shall be measured at amortized cost using the effective interest method. Note here that transactions costs will stay the same and they are not deducted anymore.

Another factor that needs to be considered for the measuring is the impairment. Essentially impairment means that the recoverable amount of an asset is lower than its balance sheet value found above. When such case occurs, the loss from impairment is recognized immediately and in full as loss on the income statement.

In short, at every balance sheet date the instruments need to be measured and as such they will also be revalued. We will cover the methods in depth separately in our future posts.