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:

+

Statement of financial performance (income minus expenses)

Statement of Financial Postion @ beginning of reporting period (assets minus liabilities equal equity)

+

Contributions from holders of equity claims minus distribution to holders of equity claims

SFP @ end of reporting period (assets minus liabilities equal equity

=

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