Unit XII Measurement Principles Asset Value

Grammar: the Passive Voice

Wordlist

apparent	очевидний	очевидный
adopt	приймати	принимать
anticipated	той, що очікується	ожидаемый
asset value	номінальна вартість активів компанії	номинальная стоимость активов компании
cash flow	потік/рух коштів	поток/движение средств
deduct	відраховувати, утримувати	вычитать, удерживать
delay	затримувати	задерживать
exceed	перевищувати	превышать
expectation	очікування	ожидание
imply	мати на увазі	подразумевать
interest at the rate	ставка проценту	процентная ставка
interest on the investment	процент з капіталовкладень	процент по капиталовложениям
likely	вірогідно	вероятно
measurement	вимірювання, підрахунок, обчислення	измерение, подсчет, вычисление
timing	розрахунок часу	расчет времени
value of assets	вартість/оцінка/ оцінювання активів	стоимость/оценка/ оценивание активов
worth	вартість, цінність	стоимость, ценность
worthwhile	вартий	стоящий

I. Read the text and say what factors value depends on.

In preparing financial statements, the accountant has several measurement systems to choose from. Assets, for example, may be measured at what they cost in the past or what they could be sold for now, to mention only two possibilities. To enable users to interpret statements with confidence, companies in similar industries should use the same measurement concepts or principles.

One principle that accountants may adopt is to measure assets at their value to their owners. The economic value of an asset is the maximum amount that the company would be willing to pay for it. This amount depends on what the company expects to be able to do with the asset. For business assets, these expectations are usually expressed in terms of forecasts of the inflows of cash the company will receive in the future. If, for example, the company believes that by spending $1 on advertising and other forms of sales promotion it can sell a certain product for $5, then this product is worth $4 to the company.

When cash inflows are expected to be delayed, value is less than the anticipated cash flow. For example, if the company has to pay interest at the rate of 10 percent a year, an investment of $100 in a one-year asset today will not be worthwhile unless it will return at least $110 a year from now ($100 plus 10 percent interest for one year). In this example, $100 is the present value of the right to receive $110 one year later. Present value is the maximum amount the company would be willing to pay for a future inflow of cash after deducting interest on the investment at a specified rate for the time the company has to wait before it receives its cash.

Value, in other words, depends on three factors: (1) the amount of the anticipated future cash flows, (2) their timing, and (3) the interest rate. The lower the expectation, the more distant the timing, or the higher the interest rate, the less valuable the asset will be.

Value may also be represented by the amount the company could obtain by selling its assets. This sale price is seldom a good measure of the assets’ value to the company, however, because few companies are likely to keep many assets that are worth no more to the company than their market value. Continued ownership of an asset implies that its present value to the owner exceeds its market value, which is its apparent value to outsiders.