In measuring the value of a liability, which measurement base uses the discounted future net cash outflows that are expected to settle the obligation in the normal course of business?
A) Realisable value.
B) Current cost.
C) Historical cost.
D) Present value.

Question

Quizplus · Accepted Answer

The measurement base that uses the discounted future net cash outflows that are expected to settle the obligation in the normal course of business is called present value. This method makes use of a discount rate to bring future cash flows into today's dollars, allowing for more accurate measurement and reporting of the liability on the financial statements. Realisable value and current cost are not appropriate for measuring liabilities, while historical cost reflects the cost at which the liability was originally incurred and does not provide relevant information about its current value.

In Measuring the Value of a Liability, Which Measurement Base