The determination of the monetary amount at which an asset/ liability is to be recognized in the balance sheet using a particular basis of measurement. The reporting entity should bear in mind, in selecting the proper measurement basis: (1) the nature of the asset or liability in question, and (2) the objective of the financial statements and qualitative characteristics of financial information (relevance and reliability).

The most popular bases of measurement for assets are historical cost, current cost, realizable value, and present value.

• Historical cost- assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of acquisition;
• Current cost- assets are carried at the amount of cash or cash equivalents that would have to be paid if the same asset or an equivalent one was acquired presently;
• Realizable value- assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly transaction; and
• Present value- assets are carried at the present discounted value of the future net cash inflows that the item is expected to generate in the normal course of business.

The most commonly used measure of value is historical cost- it is often used along with other bases of measurement. For example, inventories are usually recorded at cost or net realizable value, whichever is lower.