Dimension of Measurement Scale,Accounting as a Measurement Discipline,Measurement and Valuation,Accounting Estimates (Commerce Achiever)

Dimension of Measurement Scale:

A measurement scale should be stable in dimension over time. For example, the quantity in 1 kg or length in 1 metre does not change over time. But Money as a measurement scale is not stable over time. There occurs continuous change in the input output prices.

Example:

Looking at the monetary figures, one may be glad for 8% sales growth. But there is 10% production and sales decline. Even gross profit has declined by 10%.Thus information of one year measured in terms of Money may not be directly comparable with that of another year.

Thus Accounting measures information mostly in terms of Money, which is not a stable scale having universal applicability and also not stable in dimension over time. Hence, it is not an exact measurement discipline.

Accounting as a Measurement Discipline:

Measurement is an Important Part of Accounting. The process of Accounting begins with measurement. But most parts of Accounting discipline do not fall within the purview of Measurement discipline. Therefore we cannot simply say that Accounting is a measurement discipline.

Measurement and Valuation:

Value relates to the benefits to be derived from objects, abilities or ideas. In economics, Value is the utility, i.e. satisfaction, of an economic resource to a person contemplating or enjoying its use. In Accounting, Value is measured in terms of money. So value is indicated by measurement. Economists often use ordinal scale to indicate the level of satisfaction, while Accountants use only cardinal scale.

For example, if a car is purchased for ₹ 4,00,000, its value lies in the satisfaction to be derived by the individual using the car in future. If it is taken as ₹ 4,00,000, it is only one type of value called Acquisition cost or Historical cost.

Accounting Estimates:

As a result of uncertainties inherent in business activities, some assets and liabilities cannot be measured with precision. Their measurement is based on estimates of uncertain future activities based on present situation, past experience and latest information. Some examples where estimation is done are bad debts, useful life of an asset, inventory obsolescence, tax liabilities etc.