What is fair value principle in SAP FI-AA - Asset Accounting?

SAP Term: fair value principle

• Component: FI-AA

• Component Name: Asset Accounting

• Description: A method of restating the value of fixed assets on the balance sheet. The fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction.

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• Key Concepts: 
  The fair value principle is a concept used in SAP FI-AA Asset Accounting. It states that assets should be recorded at their fair market value, which is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. This principle is used to ensure that assets are accurately and consistently valued. 
  
  How to use it: 
  In SAP FI-AA Asset Accounting, the fair value principle is used to determine the value of an asset. This value is then used to calculate depreciation and other related costs. The fair value of an asset can be determined by using market data or by estimating the future cash flows associated with the asset. 
  
  Tips & Tricks: 
  When determining the fair value of an asset, it is important to consider all relevant factors such as market conditions, economic conditions, and the expected life of the asset. Additionally, it is important to regularly review and update the fair value of assets as market conditions change. 
  
  Related Information: 
  The fair value principle is closely related to other accounting principles such as historical cost and going concern. Additionally, it is important to note that the fair value principle does not apply to all assets; some assets may be valued using other methods such as replacement cost or net realizable value.