El General Accounting Plan (PGC) in force in Spain admits various accounting valuation criteria to determine the price of assets and liabilities. In this article we will see the 10 accounting valuation criteria that currently exist and how to find out which criteria have been used in a certain accounting.
The historical cost or cost of an asset is its acquisition price or production cost.
The acquisition price includes, in addition to the amount paid for the asset, the expenses related to the acquisition of the asset, as well as those necessary to bring the asset into operating conditions.
The cost of production includes the cost of raw materials, the consumables used in their acquisition and the use of the productive capacity of the company that is necessary for production.
The historical cost of a liability is the amount received as consideration in exchange for assuming a debt. In some cases, it can also be the amount that has to be delivered to settle a debt.
Fair value is the amount for which an asset can be exchanged or a liability settled, between interested and duly informed parties, who carry out a transaction under conditions of mutual independence. To determine the fair value, the transaction costs of the sale will not be taken into account.
The fair value, therefore, will be calculated as the market value of the asset or liability.
Net realizable value
The net realizable value is the amount that the company would obtain from the sale of the asset in the market, after subtracting the corresponding expenses for its sale.
Present value is the amount of cash flow that will be received or paid in the normal course of business, depending on whether it is an asset or a liability.
Value in use
The value in use of an asset is the present value of future cash flows expected in the normal course of business and, depending on each case, its disposal value. These flows will be updated according to the risk-free market interest rate adjusted for the specific risks of the asset. The projections of these flows will be based on reasonable and well-founded hypotheses, and probabilities may be assigned to the different estimates of cash flows.
Cost of sale
Selling costs are the costs attributable to the sale of an asset that the company incurs, not counting financial expenses and income taxes. Includes legal expenses and sales commission.
The amortized cost of a financial instrument is the amount at which a financial asset or financial liability was initially valued, less repayments of principal that would have occurred, plus or minus, as appropriate, the part allocated to the profit and loss account , by using the effective interest rate method, the difference between the initial amount and the repayment value at maturity and, in the case of financial assets, less any reduction in value due to impairment that had been recognized, and either directly as a decrease in the amount of the asset or through a corrective account of its value.
Attributable transaction costs
Transaction costs attributable to a financial asset or liability are the costs derived from the purchase, issue, sale or disposal of any type of a financial asset, or from the issue or assumption of a financial asset. It can include expenses such as notary, agency or taxes. Financial expenses are excluded.
Book or book value
The book value or book value is the amount assigned to an asset or a liability on the balance sheet of a company, after deducting accumulated depreciation and recognized impairment expenses.
The residual value is the amount that the company estimates it could obtain from its sale once the asset has already reached the end of its useful life. From this amount we must deduct the costs associated with its sale.
How to know which accounting valuation criteria have been used in a certain accounting?
Some endpoints are mandatory in certain cases, so the selection is restricted in these cases. For example, property, plant and equipment must be accounted for at cost, either its acquisition price or production value.
In addition, the valuation criteria are included in the accounting report, so we can find the criteria used to value the different assets and liabilities in accounting there.