An accounting student has just been introduced to present value analysis and comes to you with the following question, "How is present value used in the financial statements?"
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Required:
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Give the student examples of financial statement accounts that are stated at present value and explain the advantages of using present value for certain financial statement items.

What will be an ideal response?

Present value has many applications in accounting. For example, present value is used for the following items:??

a.long-term notes payable
  
b.long-term notes receivable
  
c.assets acquired by the issuance of long-term debt securities that carry either no stated interest or a rate of interest that is different from the market rate at the time of the transaction
  
d.bonds payable
  
e.investments in bonds
  
f.long-term leases
  
g.employees' post-employment benefits
?Present value is more relevant to the users of financial statements. Many assets and liabilities will be overstated if present value is not used. For example, if a company purchased land by signing a 5-year, noninterest-bearing note, the land and the note should be carried on the balance sheet at the present value of future cash flows. If not, both the asset and the liability would be overstated. Present value takes into consideration the time value of money, which enables the user of the financial statements to obtain a more accurate picture of the financial condition of the company.

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