Conceptual framework (Chapter 5 and 6)
Amount at which assets, liabilities, and equity is recognized in SFP = carrying amount
How recognition links the elements of F/S
Recognition criteria
Derecognition normally occurs for an asset:
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Statement of financial performance (income minus expenses)
Statement of Financial Postion @ beginning of reporting period (assets minus liabilities equal equity)
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Contributions from holders of equity claims minus distribution to holders of equity claims
SFP @ end of reporting period (assets minus liabilities equal equity
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Changes in equity
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Relevance
Faithful representation
Low probability of a flow of economic benefits
Existence uncertainty
Whether recognition of an item results in relevant information may be affected by, for example:
Whether recognition of an item results in a faithful representation may be affected by, for example:
Measurement uncertainty
Recognition inconsistency
Presentation and diclosure
Example
Machine
-Import from China
-Purchase ? dont know the price
-No such thing in the market
1) Define asset
2) It is a resource, I can use it to produce inventory
3) I bought it so I have control
4) Date
5) Will make inventory
Faithful representation - must be able to measure cost of asset
Relevance - Must be certain that it will provide an economic benefit
When the entity loses control of all or part of the recognized asset
Derecognition normally occurs for a liability:
When the entity no longer has a present obligation for all or part of the recognized liability
Free on board
Record already
Ownership transferred
Ours already
Derecognition aims to faithfully represent both:
Any assets and liabilities retained after the transaction that led to the derecognition
The change in the entity's assets and liabilities as a result of that transaction
Measurement of equity
Measurement basis
Historical cost
Current value
Value in use and fulfilment value
Current cost
Fair value
Total carrying amount of equity is not measured directly
It may be more appropriate to measure directly the carrying amount of some individual classes of equity and some components of equity