ASSET:

DEFINITION, RECOGNITION, & MEASUREMENT ISSUES

Click to edit Master subtitle style

3/5/12

ASSET DEFINITION: HOW IT EVOLVES

AICPA, Accounting Terminology Bulletin No 1 (1953)
Something represented by a debit balance that is or would

be properly carried forward upon a closing of books of account according to the rules or principles of accounting on the basis that it represents either a property right or value acquired, or an expenditure made which has created a property right or is properly applicable to the future

APB Statement No. 4 (1970)

Economic resources of an enterprise that are recognized
3/5/12

and measured in conformity with GAAP

ASSET DEFINITION: HOW IT EVOLVES (contd) SFAC No. 6, Elements of Financial Statements
(FASB-1985):
Probable future economic benefits obtained or controlled by

a particular entity as a result of past transactions or events

Australian Conceptual Framework (SAC4 Definition & Recognition of the Elements of Financial Statements)
Future economic benefits controlled by the reporting entity

as a result of past transactions or other past events

3/5/12

ASSET DEFINITION: HOW IT EVOLVES (contd) Framework for the Preparation & Presentation of
Financial Statements (IASC- adopted by IAI 1998):
A resource controlled by the enterprise as a result of past
events & from which future economic benefits are expected to flow to the enterprise

3/5/12

ASSET DEFINITION: HOW IT EVOLVES (contd) Shift from ownership (property right) to
control
It must be probable (or able to be expected)

to provide future economic benefit (beyond reasonable doubt)

Future economic benefit: direct or indirect

effect on future cash flow

Tendency toward broader definition of asset The downside of broader definition: more
3/5/12

difficult to set up the boundary of asset

ASSET DEFINITION: CONTROVERSIES

Deferred charge: does it have future

economic benefit? If not, why is it reported in asset section? we recognized asset (and consequently, liability) when there exists a certain mutually unperformed contracts assets?

Mutually unperformed contracts: why cannot

Why cannot we recognize soft items as

3/5/12

ASSET RECOGNITION
Two criteria that must be met in order that something can be recognized as an asset:
It must provide probable future economic

benefit (beyond reasonable doubt)

Its cost (or value) can be measured reliably

3/5/12

Second criterion helps set up boundary of

ASSET RECOGNITION (contd)

asset

It also requires identifiability (and/or

detachability) of something and its monetary value

It prohibits recognition of (almost) all self-

created economic resources

However, it is also criticized (especially by

people from other fields) as the proof of accounting conservatism & irrelevance

3/5/12

ASSET MEASUREMENT
HISTORICAL COST CURRENT COST REALIZABLE VALUE PRESENT VALUE

3/5/12