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Use of Cash Flow Information and Present Value

Use the Statement of Financial Accounting Concepts No. 7 (SFAC #7), "Using Cash Flow Information and Present Value in Accounting Measurements," prepare in your own words a 200 word paper in which you do the following: Describe the use of estimated future cash flows as the basis for measuring an asset or liability.

Then take sides on the role of present value measurement, one side should be that present value measurement reduces the usefulness and comparability of financial statements. The other side should be that present value measurement increases the usefulness and comparability of financial statements.

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There are several uses of estimated future cash flows as a basis for measuring an asset or liability. The different expected cash flows can be assigned probabilities and their present values can be used to estimate the fair value of liabilities, when one takes into account the credit standing of the business. In addition, if there is a fresh start measurement or amortization based on future cash flows, the estimated cash flow can be used to measure an asset or liability. In cases where there is no contractual cash flows, company's can develop excellent asset and liability values using all expectations about possible cash flows. The estimated future cash flows can be used for measuring liabilities by calculating the assets required to settle the liability with the company or to hand it over to another entity.
On one hand if the different expected cash flows are used to estimate a ...

Solution Summary

This posting discusses the SFAC # 7. Issues related to estimated future cash flow also described in detail.

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