2.classification of assets.pdf

8/10/2019 2.Classification of Assets.pdf

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ASSETS

The following are the Accounting Standards applicable to Assets

IAS 2 – Inventories

IAS 16 – Property, Plant & Equipment

IAS 23 – Borrowing Costs

IAS 17 – Leases

IAS 40 – Investment Property

IAS 38 – Intangible Assets

IAS 36 – Impairment

IAS 41 – Agriculture

IAS 32 – Financial Instruments Presentation

IAS 39 – Financial Instruments: Recognition and Measurement

IFRS 7 – Financial Instruments Disclosure

IFRS 9 – Financial Instruments

IFRS 5 – Non Current Assets held for sale and Discontinued Operations

IFRS 6 – Exploration for and Evaluation of Mineral Resources

IFRS 13 – Fair Value Measurement

Definition of an Asset (Conceptual Framework)

“An asset is a resource controlled by the entity as a result of past events from

which future economic benefits are expected to flow to the entity”





Important points to be noted

Control – Control normally comes from Legal ownership. But to have

control we need not have Legal Ownership. E.g. Leases

Past Events – The assets of an entity result from past transactions or other past events.

Mere intention to purchase doesn’t meet the definition of an Asset

Future Economic Benefits – The future economic benefit embodied in an

asset is the potential to contribute to the flow of cash and cash equivalents to

the entity.

The future economic benefits embodied in an asset may flow to the entity in

a number of ways. An asset may be

o

used singly or in combination with other assets in the production of

goods or services to be sold by the entity

o exchanged for other assets

o used to settle a liability

o

distributed to the owners of the entity.

Recognition of Assets in Financial Statements (Conceptual Framework)

An Asset is recognised in the balance sheet when

it is probable that the future economic benefits will flow to the entity

the asset has a cost or value that can be measured reliably

Measurement of Assets in Financial Statements (Conceptual Framework)

The following measurement bases for assets are discussed in the Conceptual

Framework

Historical Cost: Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their

acquisition.

Current Cost: Assets are carried at the amount of cash or cash equivalents that

would have to be paid if the same or an equivalent asset was acquired currently.

Realisable Value: Assets are carried at the amount of cash or cash equivalents thatcould currently be obtained by selling the asset in an orderly disposal.





Present Value: Assets are carried at the present discounted value of the future netcash inflows that the item is expected to generate in the normal course of business.

ASSET TYPE USE IN BUSINESS ? FORM OF FUTURE

ECONOMIC BENEFITS

Inventory (IAS 2) Sale or used in

production of items for

sale or in services

Usually cash or other asset

received in exchange

PP&E (IAS 16) Used in production or

supply of goods or

services, rental or

administration (more

than one period)

Usually cash through sale of

‘final’ product or service





Intangibles (IAS

38)

Used in production or

supply of goods or

services

Usually cash through sale of

‘final’ product or service

Investment

property

IAS 40)

Earn rentals or capital

appreciation, or both

Usually cash inflows

independent from other assets

Financial assets

(IFRS 9)

To generate cash

returns or as a hedging

instrument

Cash or other financial assets

received in exchange

Classification of Assets (IAS 1)

Current Assets:

An entity shall classify an asset as current when

–

it expects to realise the asset, or intends to sell or consume it, in its normal

operating cycle

– it holds the asset primarily for the purpose of trading

–

it expects to realise the asset within 12 months after the reporting period – the asset is cash or a cash equivalent unless the asset is restricted from being

exchanged or used to settle a liability for at least 12 months after the

reporting period.

The following items are normally shown under Current Assets in Financial

Statements

Inventory

Trade and Other Receivables Cash and Cash Equivalents

Non Current Assets:

The term Non Current Assets refer to any assets other than Current Assets (IAS 1).





Illustrative Statement of Financial Position (Assets)

2.classification of assets.pdf

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