Professional Documents
Culture Documents
HODGSON
HOLMES
TARCA
CHAPTER 7
ASSETS
Assets defined
IASB (AASB) Framework for the Preparation and
Presentation of Financial Statements:
an asset is a resource controlled by the entity as a
result of past events and from which future
economic benefits are expected to flow to the
entity
Assets defined
Three essential characteristics:
future economic benefits
control by an entity
past events
exchangeability
recognition rules
Control by an entity
The economic benefit must be controlled by
the entity
An entitys right to use or control an asset is
never absolute
Ownership is often concurrent with control,
but it is not an essential characteristic of an
asset
Does not rely on legal enforceability
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Past events
Control as a result of a past event
Planned assets are excluded
Event can be interpreted in different ways
executory contracts
Exchangeability
Some argue that a 4th essential characteristic
is that an asset be exchangeable
Separable from an entity
Exchangeability
MacNeal
A good that lacks exchangeability must lack
economic value because its purchase or sale must
forever remain impossible, and thus no market
price for it can ever exist
goodwill
subject to evaluation not measurement
Asset recognition
The extent and timing of the recognition of
assets is important because it can have
economic consequences for preparers and
users of financial statements
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Asset recognition
Recognising assets on the balance sheet
involves recognition rules
conventions and authoritative pronouncements
Recognition criteria
the future economic benefits must be probable
the asset must be capable of being measured
reliably
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Asset recognition
Past recognition criteria
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Asset measurement
All the elements of accounting are linked and
measurement of profit flows from
measurement of the change in net assets
The rules and practices governing asset
recognition and measurement will also affect
measurement of profit and, in turn, capital
(equity)
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Asset measurement
Once the definition and recognition criteria
have been met, the accountant must decide
how to measure the asset
several measurement approaches available
qualitative characteristics of financial information
Once measured
on balance sheet
restricted to just note disclosure
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Tangible assets
Traditional approach has been to measure
assets at historical cost
IASB standards permit subsequent
remeasurement using a number of
approaches
fair value
exit value or value in use
Intangible assets
Accounting measurement has generally been
conservative
cost (less accumulated amortisation and
impairment) is commonly used
fair values from an active market
internally generated intangibles cannot be
recognised
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Financial instruments
FASB/IASB
derivatives are measured at fair value rather than
cost
IASB
committed to the use of fair value measurement
for financial instruments
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In response to the credit crisis the IASB changed the rules to allow entities
to choose to reclassify some financial instruments from a fair value
measurement basis to a cost basis. Under what circumstances is this
reclassification allowed?
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Summary
Defining assets
Recognition and measurement criteria
Asset recognition and the measurement of income and capital
are interrelated
Mixed attribute measurement model and fair value
measurement methods
Issues arising for standard setters and auditors
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Assets
Definitions
Future economic benefits
Control
Past events
Exchangeability
Asset recognition
Asset measurement
Fair value measurement
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