(i) A criterion for recognition is that the item should be measured reliably. Measurement is the process of attaching a monetary value to the item of accounts.

(ii) The objective of measurement is to select those measurement bases that most fairly reflect the cost of services, operational capacity and financial capacity of the entity in a manner that is useful in holding the entity to account, and for decision-making purposes. The selection of a measurement basis for assets and liabilities contributes to meeting the objectives of financial reporting in the public sector by providing information that enables users to assess:
The cost of services provided in the period in historical or current terms.
Operational capacity—the capacity of the entity to support the provision of services in future periods through physical and other resources; and

• Financial capacity—the capacity of the entity to fund its activities.

(iii) Historical cost. Historical cost for an asset is the consideration given to acquire or develop an asset, which is the cash or cash equivalents, or the value of the other consideration given, at the time of its acquisition or development. Under the historical cost model assets are initially reported at the cost incurred on their acquisition. Subsequent to initial recognition, this cost may be allocated as an expense to reporting periods in the form of depreciation or amortization for certain assets, as the service potential or ability to generate economic benefits provided by such assets are consumed over their useful lives. Further, under the historical cost model the amount of an asset may be reduced by recognizing impairments. After initial recognition, the measurement of an asset is not changed to reflect changes in prices or increases in the value of the asset.

Market value. Market value for assets is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. In principle, market values provide useful information because they fairly reflect the value of the asset to the entity. The extent to which market value meets the objectives of financial reporting and the information needs of users partially depends on the quality of the market evidence. Market evidence, in turn, depends upon the characteristics of the market in which the asset is traded. Market value is particularly appropriate where it is judged that the difference between entry and exit values is unlikely to be significant or the asset is being held with a view to sale. Market Values determined in an open, active and orderly market is much more useful than a market that lacks these characteristics.

Replacement cost. Replacement cost is the most economic cost required for the entity to replace the service potential of an asset (including the amount that the entity will receive from its disposal at the end of its useful life) at the reporting date. Replacement cost is the cost of replacing an asset’s service potential.

Net selling price. Net selling price is the amount that the entity can obtain from sale of the asset, after deducting the costs of sale. Net selling price differs from market value in that it does not require an open, active and orderly market or the estimation of a price in such a market and that it includes the entity’s costs of sale. Net selling price therefore reflects constraints on sale. The potential usefulness of measuring assets at net selling price is that an asset cannot be worth less to the entity than the amount it could obtain on sale of the asset. However, it is not appropriate as a measurement basis if the entity is able to use its resources more efficiently by employing the asset in another way, for example by using it in the delivery of services. Net selling price is therefore useful where the most resource-efficient course available to the entity is to sell the asset.

Value in use. Value in use is the present value to the entity of the asset’s remaining service potential or ability to generate economic benefits if it continues to be used, and of the net amount that the entity will receive from its disposal at the end of its useful life.