The use of fair value to account for debt investments allows for more relevance of accounting figures because they would reflect the latest market assessment and opinion regarding these instruments. a. Do you agree with this statement? Explain why. b. What are the possible disadvantages’ of using the fair value accounting?
The use of fair value to account for debt investments allows for more relevance of accounting figures because they would reflect the latest market assessment and opinion regarding these instruments. a. Do you agree with this statement? Explain why. b. What are the possible disadvantages’ of using the fair value accounting?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
The use of fair value to account for debt investments allows for more relevance of accounting figures because they would reflect the latest market assessment and opinion regarding these instruments.
a. Do you agree with this statement? Explain why.
b. What are the possible disadvantages’ of using the fair value accounting?
Expert Solution
Step 1
It helps in assessing the value at actual worth in the market.
Step 2
Fair value reflects the actual worth of that debt and investment at prevalent market rates. That gives a more realistic assessment. It means what a person will get by selling its investment today in the market in the case of investments. In the case of debt, it means what a person has to pay today.
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