For Some Transactions GAAP Requires That Value Changes Are Recognized

question 50

Essay

For some transactions GAAP requires that value changes are recognized on the balance sheet and the income statement when they occur,even if not realized.Discuss what types of transactions get this type of treatment and the logic behind this accounting.

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Definitions:

Fair Value

An accurate valuation of an asset or liability derived from current market conditions and agreed upon by knowledgeable, willing parties in an arm's length transaction.

Fair Value Through Profit or Loss

An accounting method where changes in fair value of investments are recorded in the profit or loss for the period.

Common Shares

Equity ownership units in a corporation, entitling holders to votes at shareholder meetings and to a share in the company's profits.

Journal Entries

Entries made into an accounting ledger to document financial transactions, ensuring the debits equal the credits.