What is Market Value Accounting and what are its potential benefits?
Market Value Accounting is an alternative to Historical-Cost Accounting. In Historical-Cost Accounting, assets are carried on a company’s books at their actual amortized costs. Market Value Accounting permits specific assets to be shown at current market values; given the dynamic nature of the market, this can result in valuing some assets significantly under their true economic values. Recently, banks and savings and loans have favored the use of Market Value Accounting, due to dramatic changes in the perceived value of many securities currently on their books. Some argue that Market Value Accounting can help protect potential investors against insolvency, as it more closely reflects current economic trends. Others feel that this valuation method is confusing and potentially misleading.
