* Wealth and the measurement of profits

Wealth
* about what an enterprise owns and what it owes, could be
termed the worth of the enterprise or its wealth.
profit measurement
* measurement of changes in wealth over time is referred to in
accounting terminology as profit measurement.
Profit
* Income is that amount which an individual can consume and
still be as well off at the end of the period as he or she was at
the start of the period.

This definition can be illustrated diagrammatically as follows:

Wealth 0 Wealth 1 Wealth 2
Time T0 Time T1 Time T2
Profit Profit
* Key Concept 1: Income
A relationship exists between income, or profit, and wealth. The
definition above suggests that income can be derived by measuring wealth
at two different points in time and the difference between the two
figures is the income or profit.
Income Wealth

* Key Concept 2:Wealth

Wealth is a static measure and represents a stock at a particular point in
t1me. This stock can change over time. Thus the wealth measured at the
start of a period will not necessarily be equal to the wealth measured at
the end of the period. The difference between the two is the profit or loss
for that period of time.

* Key Concept 3: Profit

Profit represents the difference between the wealth at the start and at
the end of the period. Unlike wealth which is essentially a static measure,
profit is a measure of flow which summarizes activity over a period .
* Historical Cost
In accounting, the historical cost of an asset refers to its
purchase price or its original monetary value.
It is relatively easy to retrieve the original cost of an asset,
provided records were kept.
No adjustments are made to reflect fluctuations in the market
or changes resulting from inflationary fluctuations. 
* Replacement cost
There are other ways to assign costs to assets. The historical
cost of an asset is different from its inflation-adjusted cost or
its replacement cost. 
The replacement cost is the current value one would pay to
acquire a similar asset, and the inflation-adjusted cost is the
upward or positive adjustment of the acquisition cost of an
asset from the time of purchase, relative to changes in
inflation.
* Economic Value
Economic value is the value that person places on an economic good
based on the benefit that they derive from the good.

The economic value should not be confused with market value.

* Net realizable value

Net Realizable Value is the value at which the asset can be sold in
the market by the company after subtracting the estimated cost
which the company could occur for selling the said asset in the
market, and it is one of the essential measures for valuation of the
ending inventory or receivables of the company.
Steps to Calculate Net Realizable Value
1. Determine the Market Value of the Asset
2. List all the cost associated with selling the Asset (including
transportation, insurance, production, testing, tax, etc.)
3. Calculate NRV = Market Value of Asset – Selling Cost of the Asset
* Net realizable value
Net Realizable Value is the value at which the asset can be sold
in the market by the company after subtracting the estimated
cost which the company could occur for selling the said asset in
the market, and it is one of the essential measures for
valuation of the ending inventory or receivables of the
company.

Steps to Calculate Net Realizable Value

1. Determine the Market Value of the Asset
2. List all the cost associated with selling the Asset (including
transportation, insurance, production, testing, tax, etc.)
3. Calculate NRV = Market Value of Asset – Selling Cost of the
Asset