JOURNAL OF ACCOUNTING AND FINANCE
An Examination of Potential Changes in Ratio Measurements Historical Cost
versus Fair Value Measurement in Valuing Tangible Operational Assets
Author(s): Pamela Smith Baker
Citation: Pamela Smith Baker, (2011) "An Examination of Potential Changes in Ratio Measurements Historical Cost versus Fair Value Measurement in Valuing Tangible Operational Assets" Vol. 11, Iss. 2, pp. 170 - 176
Article Type: Research paper
Publisher: North American Business Press
A fictitious property management company is created by randomly selecting 30 tangible, operational assets valued using both historical cost and fair value measurements. Two sets of financial statements are created for the years 2004 to 2008, one using the historical cost valuations and the other using the fair value measures. Ratio analysis performed shows that the ratios calculated using historical cost measures present more favorable profitability and asset utilization results, while ratios based upon fair value measures suggest more favorable debt utilization results.