There are two important points at which assets and liabilities are measured in financial accounting: initial recognition and reporting date of the balance sheet. At a balance sheet date there are fundamentally two alternative measurement concepts: 1. Historical costs based on the measurement of assets and liabilities at purchase price (costs) that were incurred at moment of purchase less any adjustments made subsequent to acquisition, and 2. Fair value measurement based on market prices.

Required: Discuss each of the two alternative measurement methods. In your discussion outline the pros and cons of each method.