What are the three distinct types of assets that appear in the balance sheets, and what degree of certainty and measurement reliability does each represent?
What will be an ideal response?
ANSWER:
The three types of assets that appear in balance sheets are those held for sale, those that have economic value through use in production, and deferred charges. Assets held for sale and measured at net realizable value (such as receivables) represent a high degree of certainty as to realization as well as measurement reliability. Assets held for production represent more uncertainty as to the realization of future economic benefits due to the inherent uncertainty of manufacturing. Furthermore, historical cost gives little indication of the productive value of such assets. Finally, certain types of deferred charges do not have any direct effect on future cash flows.
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