INTRODUCTION:
Accounting aspirants are usually confused about the distinction between Fair value vs Historical cost Nepal; however, these are essential academic areas that students must achieve utmost clarity in. Either of these topics is the focus area of the financial reporting modules; a good Nepali accountant must have in-depth knowledge about Nepal’s financial reporting standards. Indeed, historical cost and fair value accounting in Nepal are the core areas; yet, unfortunately, many students struggle to understand these concepts.
These essential areas can not be overlooked; hence, to help students gain knowledge about fair value and historical cost, we have brought forward this well-equipped digital guide. The guidebook is significantly insightful and provides all the relevant information about either of these accounting areas to ensure Nepali accountants and aspirants are equipped with the relevant knowledge to progress academically as well as professionally. Hence, future accountants seeking meaningful, relevant knowledge must give this blog a read.
WHAT IS FAIR VALUE ACCOUNTING NEPAL?
By fair value in accounting, it means recording the current market value of the assets and liabilities; the price at which those assets or liabilities currently stand in the market. Fair Value accounting Nepal is an important concept used for several reasons, including that it brings forward the economic reality in accounting, which is more relevant for investors, is in alignment with IFRS, and ensures effective decision making.
Where we show the positive picture of this concept, note that there are several limitations too, such as it can be subjective, market uncertainty affects financial statements, requires efficient estimation alongside judgement, etc.
WHAT IS A HISTORICAL COST ACCOUNTING NEPAL?
The historical cost accounting Nepal can be considered a bit contrary to the fair value; in this accounting concept, the assets and liabilities are recorded at the original price. For example, a property was bought for NPR 350,000; now the value of that property has increased to NPR 980,000; according to the historical cost accounting Nepal, the recorded amount will be 350,000. The reasons why this method is still used and much appreciated are that the application is simple and easy, low subjectivity, it is more objective as well as verifiable, and can be used in reliable documentation.
Alongside all the pros of this historical cost method, we are also going to discuss the limitations; the most common limitations or drawbacks of this method are that it does not reflect the current market value of an asset or liability, comparatively ineffective decisions, etc.
WHY DO THESE METHODS MATTER FOR NEPALI STUDENTS?
Fair value accounting Nepal and Historical cost accounting Nepal are the popular topics covered by accounting and finance aspirants, as these are the core concepts that must be known by students to have a smoother journey. There are several factors that make these accounting measurement bases essential for Nepali students; some of them are listed below:
- Traditional businesses still use historical cost methods while prioritizing simplicity; hence, aspirants should have in-depth insights about this method.
- The IFRS as well as NFRS, either of the reporting bodies, mainly promote the fair value measurement method; hence, a strong understanding of this concept is encouraged.
- If aspirants are planning for advanced professional accounting qualifications, they must have an understanding of fair value and historical cost accounting Nepal.
- Having in-depth knowledge about either method helps in polishing an individual’s skills of financial statement measurement, eventually leading to a good impression professionally.
Fair Value or Historical Cost in Nepal:
The differences between historical cost and fair value accounting Nepal are quite obvious; to be precise, historical cost is based on an asset’s original market value (past-based). Whereas the fair value corresponds to it, in this method, the asset is recorded at the current market value (present-focused). Note that the Fair value is part of modern financial reporting, whereas historical value is considered part of foundation accounting. Nonetheless, students should understand the differences between the methods and learn to use them efficiently to avoid any academic or professional hurdles in the future.
PRACTICAL STUDENT STRATEGY:
As mentioned before, these foundational concepts should be clear to all the students; aspirants can efficiently gain expertise in fair value accounting Nepal and historical cost accounting Nepal by learning both theories, applying these methods in practical world scenarios, and then comparing both the results. This practice can indeed be very effective for an accounting aspirant seeking the best expertise and academic stability.
CONCLUSION:
Indeed, understanding both the historical cost and fair value accounting Nepal is too crucial for Nepali accountants and aspirants, as these are core accounting methods that make financial statement measurement a bit easier. By understanding the core differences in both the measurement methods, it becomes easier to build the relevant expertise; therefore, to give you a push, we have discussed fair value vs historical cost Nepal in this student guide to accounting concepts. Students are encouraged to learn the major differences between the methods and then steadily explore more relevant information. This core knowledge will not only help you progress academically but also prove to be meaningful in the professional world too.
FREQUENTLY ASKED QUESTIONS:
Q1: Is fair value compulsory under the Nepal Financial Reporting Standards?
Answer: However, IFRS doesn’t mandate the use of fair value universally; yet the Nepal financial reporting standards make the fair value compulsory for specific items such as financial instruments (trading stocks), etc.
Q2: Accounting exam tips Nepal for advanced professional qualifications in Nepal?
Answer: Taking advanced professional accounting exams in Nepal can indeed be a bit overwhelming and challenging at the same time, but with a structured study plan, continuous learning, determination, taking mock exams, and by wisely leveraging credible study resources or learning partners, success can be ensured.
