The Balance Sheet Presentation

1. What is the role of Fair Value Measurement in the balance sheet presentation? How does usefulness of the existed value compare to usefulness of the entering value? Why do companies use other comprehensive income to report gains and losses?

There are three primary sections of a balance sheet for a business: assets, liabilities, and equity. Assets are the items of a business that are essential for generating revenues, such as raw materials, inventory, machinery, and the building where a company operates. Liabilities also come in the form of unearned revenue for money received for future services or delivery of a product. Equity, sometimes called the book value of a company, is the value of a company's assets minus liabilities.

The FASB views a fair market value balance sheet as being a more transparent method of accounting. Supporters argue that fair value accounting provides more relevant information for investors. Those who argue against using fair value accounting, claim that, although fair market value of an asset may be more relevant, is also less reliable. A number of factors can affect the appraised value of an asset, resulting in a range of prices.

Interestingly, in numerous scenarios, FASB believes it is appropriate to use fair value measurements to record asset impairments. Supporters of fair value accounting could use these scenarios to support the use of fair value accounting for all assets and liabilities on the balance sheet. Proponents of fair value accounting argue that this measurement is more relevant to decision makers even if it is less reliable. First, fair value accounting would produce balance sheets that are more representative of a company's value. Specifically, unless the values of fixed assets are assumed to remain the same over time, historical cost information is relevant only upon obtaining the asset. Furthermore, because historical cost measures remain unchanged over time, users do not get valuable