A measurement basis is an identified feature of an item, such as historical cost or fair value, and applying it produces the number that goes on the line. Six of them appear in the statements you have already learned to read.
What are the six measurement bases?
Historical cost measures an asset at the consideration paid plus transaction costs, and a liability at the consideration received net of transaction costs. It is not updated for price changes, only for consumption, impairment and collection. Property, plant and equipment under the cost model, inventory before any write-down and most intangibles are carried this way.
Amortised cost is historical cost updated by the effective-interest method. It carries a financial instrument at the present value of its remaining cash flows discounted at the rate set on day one. Every bond in the liabilities work is carried this way, and so is the lessor's net investment in a lease, covered on the lessor accounting page.
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Current cost is what it would cost to acquire an equivalent asset today, less accumulated depreciation. It appears rarely in practice and is worth knowing because inflation-accounting debates and replacement-cost reasoning about capital intensity both rely on it.
Realisable value, or strictly net realisable value for an asset and settlement value for a liability, is what you would get on an orderly sale less the costs of selling, or what you would have to pay to settle. Inventory carried at the lower of cost and net realisable value is the everyday case.
Present value discounts expected future cash flows at a rate that reflects the timing and the uncertainty. Provisions, decommissioning obligations, defined-benefit obligations and lease liabilities are all present values, so they move when the discount rate moves even though no transaction has occurred.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It's an exit price, it's based on the market and not on the entity, and it's ranked in a three-level hierarchy: quoted prices in active markets for identical assets, then observable inputs other than quoted prices, then unobservable inputs.
Why do measurement bases matter to an analyst?
Two facts about this list carry more weight for an analyst than the definitions do.
The first is that a single balance sheet routinely uses several bases at once, and the total is therefore not a valuation of anything. An Indian manufacturer will carry its plant at historical cost less depreciation, its inventory at the lower of cost and net realisable value, its listed investments at fair value, its borrowings at amortised cost, its gratuity obligation at present value and its investment property at cost with fair value in a note. Adding those numbers up gives you total assets, which is a legally required subtotal and not an economic quantity.
The second is the question that matters most to you as an analyst. Which of these lines can move without a transaction? Historical cost cannot, apart from impairment. Amortised cost moves only on a schedule set at inception. Present value moves when the discount rate or the estimate moves, and fair value moves whenever the market does.
Earnings-quality questions gather on the lines that can move on their own. The rest of the week is a tour of the biggest of them.