“Valuing tangible non-current assets is subjective and complex and can therefore result in different companies valuing similar assets very differently”
Financial reporting attempts to measure the worth of assets, a concept that is inherently subjective and arbitrary. We can never know the true value of an asset, and rather than being an objective truth, valuations are always biased. Financial reporting is used for different purposes by different users and so each different way might be appropriate in different circumstances and values are affected by the purpose of measurement. Property, plant and equipment are the main non-current assets that a company holds. Similar assets can be valued differently in different companies due to several different factors which I will discuss in this essay.
Tangible non-current assets are usually valued by using the historical cost, which is the initial cost of acquiring the asset to the company. The IFRS states that the historical cost of an item not only includes the price paid for it, but also “any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.” This includes transportation and labour costs, and the cost of site preparation. Different companies may have different views on whether costs involved in bringing the asset into use should be counted as part of the asset or an expense, and often small costs that should be capitalised are recorded as expenses for convenience. Costs added to the value of the asset should be capitalised only for the period in which the activities that are necessary to get the asset ready for use are in progress. One must decide whether any of the costs incurred have a life longer than the end of the accounting period, for example, maintenance costs may be included under expenses. The