lecture2 - ACCT 3220 Relevance vs Faithful Representation...

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ACCT 3220/Aug 25, 2010 1 Relevance vs. Faithful Representation Why is it important to provide relevant information in financial reports? Why is it important to provide faithful (reliable) information in financial reports? What is the tradeoff here? Fair Value vs. Historical Cost You are an investor considering a company that owns a condo rental property in Vail, CO. The property was bought in 1966 for $750,000. Should the company report the property in its balance sheet at $750,000? Why or why not?
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2 Fair Value vs. Historical Cost Accounting standards are transitioning more towards Fair Value reporting (particularly under IFRS) This raises two fundamental issues: 1. How much is fair value? 2. Where do the changes go? Income Statement? Directly to Equity? Example: Vail Condo “fair value” is now $2,000,000 We need a debit to the Asset called Condo of $1,250,000 What’s the corresponding credit???? Fair Market Value Issue # 1: Determining Fair Value
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This note was uploaded on 10/12/2010 for the course ACCT 3220 taught by Professor Hollie,dana during the Fall '08 term at Colorado.

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lecture2 - ACCT 3220 Relevance vs Faithful Representation...

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