Question 1 Topic - Additivity in Financial Reporting (200 words)Question 2 Topic - Valuing assets on...

Question

Question 1 Topic - Additivity in Financial Reporting (200 words)
Question 2 Topic - Valuing assets on the basis of replacement cost (200 words)Question 3 Topic - Valuing assets on the basis of exit prices in buyer markets (200 words)

Robert · Accepted Answer

Question 1 Topic - Additivity in Financial Reporting (200 words)
Value additivity principle may be defined as the principle where value of group of asset 
is equal to the value of all individual assets which comprises that particular group. It is 
calculated by multiplying the present value factor with the value of the asset.Net present 
value of group of assets must be equal to the sum of net present value of each of asset 
belonging to that group.  
Discounting rate is used to calculate net present value of the asset. The cost of an asset 
is discounted at the rate of return to find out the present value of asset or group of 
asset.  
Following are some of the drawbacks of additive principle:- 
1. It ignores time value of money. There has been change in the value of money with 
the passage of time. Therefore with the change in the time period, money value of asset 
is changed which is ignored.  
2. Finding the exact discounting rate to calculate present value factor is not easy. It is 
complex task and requires some approximations and estimations.  
3. As money is subject to inflation, it reduces the spending power of the currency over 
time, which in result making it worth less in the future.

Question 1 Topic - Additivity in Financial Reporting (200 words) Question 2 Topic - Valuing assets on the basis of replacement cost (200 words)Question 3 Topic - Valuing assets on the basis of exit...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment