Measurement bases explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Measurement answers one question: at what rupee amount is an asset or a liability to be carried in the books? The Framework names four bases, and Accounting Standards pick one or combine several for each item. This guide shows all four on one invented asset and then shows how an estimate, such as the useful life of that asset, is revised. It is the kind of judgement our financial statement preparation team documents at every year-end.
The Framework (paragraph 99) lists historical cost, current cost, realisable (settlement) value and present value. Historical cost is the most common, usually combined with others: stock is carried at the lower of cost and net realisable value (AS 2, paragraph 5). Many figures can only be estimated, and a change in an estimate is applied to the current and future periods, not to the past (AS 5, paragraph 23).
The four bases
Paragraph 98 defines measurement as determining the monetary amounts at which elements are recognised and carried. Paragraph 99 describes the four bases.
| Basis | Asset is carried at | Liability is carried at |
|---|---|---|
| Historical cost | Cash or cash equivalents paid, or fair value of other consideration given, at acquisition | Proceeds received in exchange for the obligation |
| Current cost | What would have to be paid if the same or an equivalent asset were acquired now | The undiscounted cash needed to settle the obligation now |
| Realisable (settlement) value | What could currently be obtained by selling in an orderly disposal | Undiscounted cash expected to be needed to settle in the normal course |
| Present value | Present value of future net cash inflows the item is expected to generate | Present value of future net cash outflows to settle |
Paragraph 100 says historical cost is most commonly adopted, "usually combined with other measurement bases", with stock at the lower of cost and net realisable value and pension liabilities at present value. It also says that current cost may be used as a response to changing prices of non-monetary assets. The Framework itself is explained in our guide to the Framework.
Lower of cost and net realisable value
AS 2, paragraph 5, says inventories are valued at the lower of cost and net realisable value. Paragraph 20 gives the reason: cost may not be recoverable if stock is damaged, obsolete or its selling price has fallen, and assets should not be carried above what is expected to be realised. Paragraph 21 says the write-down is usually done item by item, and not by a class such as "finished goods". Paragraph 25 requires a fresh assessment at each balance sheet date. Stock is never carried above cost, because the comparison is always with cost. Our guide to AS 2 on inventories covers cost formulas and disclosure.
Accounting estimates
Many figures cannot be measured precisely. AS 5, paragraph 20, names bad debts, stock obsolescence and useful lives as examples, and says that the use of reasonable estimates does not undermine reliability. The steps are:
- Use the latest information available at the balance sheet date.
- If circumstances change or new information comes in, revise the estimate. A revision is not a prior period item (paragraph 21).
- Include the effect in profit or loss of the period of change, and in future periods if they are affected (paragraph 23). A change in a bad debt estimate affects the current period only; a change in useful life affects the current and each remaining period (paragraph 24).
- Show the effect under the same head of the profit and loss account as before (paragraph 25).
- Disclose its nature and amount if the effect is material (paragraph 27).
Where it is hard to tell a change of policy from a change of estimate, paragraph 22 says to treat it as a change of estimate, with disclosure. See AS 5 on prior period items and policy changes for the full standard.
Worked example: one cold-storage unit, four bases and a revised life
The entity and all figures in this example are invented for illustration.
Meera Foods bought a cold-storage unit on 1 April 2024 for 8,00,000. It estimated a life of 10 years and no residual value, and charges depreciation on a straight line. On 31 March 2026 the unit is two years old. All discount rates below are assumed, for arithmetic only.
Step 1 – historical cost basis. Depreciation for two years is 8,00,000 / 10 x 2 = 1,60,000. Carrying amount is 8,00,000 - 1,60,000 = 6,40,000.
Step 2 – current cost. A dealer quotes 7,10,000 for an equivalent unit of the same age and condition.
Step 3 – realisable value. An orderly sale today would fetch 5,50,000.
Step 4 – present value. The business expects the unit to produce net cash inflows of 1,70,000 a year for the next five years. At an assumed discount rate of 10 per cent:
| Year | Inflow | Factor at 10 per cent | Present value |
|---|---|---|---|
| 1 | 1,70,000 | 0.9091 | 1,54,547 |
| 2 | 1,70,000 | 0.8264 | 1,40,488 |
| 3 | 1,70,000 | 0.7513 | 1,27,721 |
| 4 | 1,70,000 | 0.6830 | 1,16,110 |
| 5 | 1,70,000 | 0.6209 | 1,05,553 |
| Total | 8,50,000 | 6,44,419 |
Check on the present value: 1,54,547 + 1,40,488 = 2,95,035; + 1,27,721 = 4,22,756; + 1,16,110 = 5,38,866; + 1,05,553 = 6,44,419. Equal to 1,70,000 x 3.7907 = 6,44,419.
Summary of the four.
| Basis | Amount |
|---|---|
| Historical cost (carrying amount) | 6,40,000 |
| Current cost | 7,10,000 |
| Realisable value | 5,50,000 |
| Present value | 6,44,419 |
Which basis applies depends on the standard that governs the item; for an item like this, the books carry historical cost less depreciation, and the other figures inform the assessment of impairment under AS 28. The other three bases show why different standards reach different numbers for the same unit.
Step 5 – change in the estimate. In April 2026 Meera Foods learns the unit's technology will be outdated sooner and revises the remaining life from 8 years to 5 years. This is a change in estimate (AS 5, paragraphs 21 and 24): the 1,60,000 already charged is not touched.
| Particulars | Amount |
|---|---|
| Carrying amount at 1 April 2026 | 6,40,000 |
| Remaining life | 5 years |
| New annual depreciation (6,40,000 / 5) | 1,28,000 |
| Old annual depreciation (8,00,000 / 10) | 80,000 |
| Extra charge each year | 48,000 |
Check: 1,28,000 x 5 = 6,40,000, so the asset is fully written off at the end of the new life; 1,28,000 - 80,000 = 48,000.
Step 6 – stock at the lower of cost and net realisable value. Meera Foods also holds three items of stock at the year-end, judged item by item.
| Item | Cost | Net realisable value | Carried at |
|---|---|---|---|
| A | 70,000 | 62,000 | 62,000 |
| B | 50,000 | 56,000 | 50,000 |
| C | 40,000 | 36,000 | 36,000 |
| Total | 1,60,000 | 1,54,000 | 1,48,000 |
The write-down is 70,000 - 62,000 + 40,000 - 36,000 = 12,000. Item B is not written up, and its gain does not offset the write-downs of A and C. Check: 1,60,000 - 12,000 = 1,48,000.
Need help with measurement and estimates?
If year-end figures for stock, depreciation lives or provisions rest on rough estimates, our team can document the basis and make the entries consistent. Ask about financial statement preparation and we will review the workings with you.
Key takeaways
- The four Framework bases are historical cost, current cost, realisable value and present value.
- Historical cost is the usual base; stock is valued at the lower of cost and net realisable value.
- Net realisable value is assessed item by item at each balance sheet date.
- A change in estimate affects the current period and any affected future periods; earlier years are not restated.
- Disclose a material change in estimate with its nature and amount.
Read next
- Framework for the Preparation and Presentation of Financial Statements
- Depreciation accounting
- AS 5 Prior Period Items
- AS 2 Valuation of Inventories
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.