Question 3 - 750 words Deegan (2014 p

A mixed measurement model of accounting refers to an approach to accounting wherein a variety of measurement approaches are used to measure assets and liabilities. No one basis of measurement is prescribed for all classes of assets and liabilities. Using a mixed measurement model, provides flexibility for preparers of financial reports.

For example, when measuring there is an active market for an asset, preparer can choose fair value to record theasset, conversely, historical cost can be used when no active market existed for the asset.Furthermore, when markets become unstable such as the time of financial crisis, it might appear inappropriate to base the measurement of an asset on fair value because prices are volatile.

However, there are also downsides of allowing a mixed measurement approach. First, it potentially undermines the comparability of financial reports prepared by organisations that use different measurement bases. Second, it leads to what is known as an ‘additivity problem’, wherein the sum of total assets will represent the summation of assets and liabilities measured on different bases. Lastly, where choice is available, it allows for the possibility that managers will opportunistically select the measurement basis that best suits them (that is, the method which provides a preferred result.

Different information from different measurement bases may be relevant in different circumstances. A particular measurement bases may be easier to understand, more verifiable and less costly to implement. However, if different measurement bases are used, it can be argued that the totals in financial statements have little meaning. Those that prefer a single measurement method favour the use of current values to provide the most relevant information.