What is Deemed Cost?
Deemed cost refers to an amount assigned to an asset as its value at a particular date, substituting the asset’s net book value. This financial concept shines during the thrilling episodes of transitioning to a new accounting regime, much like a hero in a financial saga, ensuring continuity and comparability in the books of accounts.
When entities embrace a fresh accounting standard, the tome of financial norms often allows them to elect this valiant value, known as deemed cost, especially for deliciously tangible items like property, plant, and equipment. According to the gripping Section 35 of the Financial Reporting Standard Applicable in the UK and Republic of Ireland, an entity stepping into the glamorous shoes of a new standard can elect to measure these assets at fair value—or a previously recognized valuation—which is then bravely knighted as the deemed cost.
Why Deemed Cost Matters
In the high-stakes world of accounting, deemed costs are like the secret seasoning that can transform the financial flavor of your asset stew. By adopting a deemed cost, entities can ensure their financial statements do not mislead or baffle but instead reflect a stable and understandable portrayal of their economic circumstances:
- Transition Smoothness: Like a financial lubricant, deemed cost helps smooth over the potentially bumpy transition to a new accounting standard, allowing previous investments to continue to be useful under new rules.
- Comparability: With deemed costs, companies can maintain comparability with past financial statements, allowing stakeholders to compare kumquats to kumquats rather than kumquats to kangaroos.
- Flexibility: Deemed cost provides a flexible choice for entities, especially when market values are as hard to nail down as a jellyfish in a wrestling match.
Related Terms
- Net Book Value: The superhero sidekick to deemed cost, this is the value of an asset after accounting for depreciation and amortization.
- Fair Value: The financial mirror that reflects what someone would willingly pay for an asset in the market’s grand bazaar.
- Asset Revaluation: The art of adjusting the book value of a fixed asset when its fair market price has moonwalked away from its previously reported value.
Suggested Books for Further Study
- “Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud” by Howard Schilit - Dive into the detective work behind uncovering crafty accounting tricks, including when and how deemed costs might be manipulated.
- “Accounting For Dummies” by John A. Tracy - A friendly guide that explains the basics of accounting with a sprinkle of humor, perfect for unwrapping concepts like deemed cost.
- “International Financial Statement Analysis” by Thomas R. Robinson et al. - Equip yourself with the tools to analyze financial statements on a global stage, understanding the role of elements like deemed cost in diverse accounting landscapes.
Intrigued by the role of deemed cost in the world of finance? Remember, in the kingdom of accounting, being deemed is nearly as grand as being crowned! Armed with the power of deemed cost, you’re now ready to conquer your financial statements with the wisdom of a sage and the wit of a jester.
