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Elements of Measurement Principle

  • Identification of objects and events to be measured: As the basic objective of accounting is to systematically record the financial aspects of business transactions, classify, summarise and communicate the information to the various users. Every enterprise will need to measure its performance. There is no uniform set of events or transactions that are required for decision making but, to take the decision about the unseen future the decision makers need suitable information. The objects or events to be measured include measurement of information which may be past, present or future.

    For example, for giving loan to a business one needs information regarding the repaying ability, past track record of repayment, future projections etc.

Note: It may be noted that the future transactions or events are only predicted but not measured. Past and present transactions or events can be measured with some degree of accuracy. 

  • Selection of standard or scale to be used: Money is the scale of measuring business performance. For example: when a business sells 10 mobiles it does not record sale of 10 mobiles but it records sale of 10 mobile at ₹ 10,000/- each, i.e. sale of mobile worth Rs 1,00,000/-. It takes the shape of the currency ruling in a country. Also, there is no constant exchange relationship among the currencies. Like the scale of measurement in India is Rupee, in U.K. is Pound-sterling, in US its dollars, etc.

Note: Money as a unit of measurement lacks universal applicability, moreover the rate of exchange fluctuates between two currencies from time to time, and money as measurement scale also becomes unpredictable.

  • Evaluation of dimension of measurement standard or scale: Business performance is measured in terms of money earned. An ideal measurement scale should be stable over time. Money is not stable in the dimension for comparison over time as the same amount of money may not be able to buy the same quantities of identical goods at different periods. Thus, the information of one year measured in terms of money may not be comparable with that of another year.

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