VALUATION OF ENTRIES IN THE BALANCE SHEETS

General valuation principles

7.25 A particular item in the balance sheet should be valued as if it were being acquired on the date to which the balance sheet relates, including any associated costs of ownership transfer in the case of non-financial assets. This implies that assets and liabilities are to be valued using current market prices on the date to which the balance sheet relates.

This means that assets should be valued on the basis of

  1. purchasers' prices if they are bought;
  2. basic prices if they are own-account produced and on the basis of basic prices of similar goods or of the sum of its cost if no basic prices are available.
7.26 Ideally, these prices should be prices observable on the market. When there are no observable prices – as may be the case if no purchases/sales of the items in question have been observed in the recent past – an attempt has to be made to estimate what the prices would be if the assets were acquired on the market on the date to which the balance sheet relates.

7.27 In addition to prices observed on markets or estimated from observed prices or costs incurred, current prices may be approximated for balance sheet valuation by:

  1. revaluing and accumulating acquisitions less disposals or
  2. the present, or discounted, value of future returns.
7.28 Market prices are usually available for many of the financial assets, existing real estate (buildings and other structures plus the underlying land), existing transport equipment, crops and livestock as well as for newly produced fixed assets and inventories.

7.29 For some assets revalued initial acquisition prices are written off over the asset's expected life. The value of such an asset at a given point in its life is given by its current acquisition price less the accumulated value of these write-offs. Most fixed assets can be recorded in balance sheets at current purchasers' prices written down for the accumulated consumption of fixed capital (written-down replacement cost)3.

7.30 In the case of assets for which the returns either are delayed (as with timber) or are spread over a lengthy period (as with subsoil assets), a rate of discount must be used to compute the present value of the expected future returns.

The rate of discount should be derived from information based on transactions in the particular type of assets under consideration – forests, mines and quarries – rather than using a general rate of interest.

7.31 The value of assets and liabilities denominated in foreign currencies should be converted into the national currency at the market exchange rate prevailing on the date to which the balance sheet relates. This rate should be the midpoint between the buying and the selling spot rates for currency transactions.

7.32 Alternatives to current market values might be useful for some analytical purposes and may be shown as memorandum items in the balance sheets. Examples of alternative valuation include nominal value for long-term bonds and revalued paid-in and equivalent value for corporate equity.