GODFREY

HODGSON
HOLMES
TARCA
 INTRODUCTION
1. What is asset and what are characteristics of assets
2. How is asset measured and recognized in financial
statements
3. How are current asset and intangible asset measured
and recognized
4. What is Plant, Property and Equipment and how are
they recognized
5. What is Biological Assets and how are they
recognized
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Assets defined
• IASB Framework for the Preparation and Presentation of
Financial Statements:
• OLD Version
– 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
• New Version (2018):
– An asset is a present economic resource controlled by the
entity as a result of past events.
– An economic resource is defined as a right that has the
potential to produce economic benefits.

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Assets defined
Three essential characteristics:
– future economic benefits
– control by an entity
– past events

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Future economic benefits
• Future economic benefits = the capability of
rendering service or benefit currently or in
the future, either directly or indirectly, to the
entity
– profit seeking entity
– not-for-profit entity
• Relate to economic resources
– scarcity
– utility
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Control by an entity

• The economic benefit must be controlled by

the entity
• Ownership is often concurrent with control,
but it is not an essential characteristic of an
asset
• Does not rely on legal enforceability
(Economic Substance over Legal Form)

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Past events

• Control as a result of a past event:

– Purchase
– Lease
– Construction
– Donation
• Planned assets are excluded

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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

– reliance on the law
– determination of economic substance of
the transaction or event
– use of the conservatism principle:
anticipate losses, but not gains

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Asset measurement

• how to measure the asset

– several measurement approaches (HC, FV, etc)
– qualitative characteristics of financial
information

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Tangible assets

• Traditional approach = at historical cost

• IASB standards permit subsequent
remeasurement:
– fair value
• exit value or value in use (will be discussed on
topic Fair Value measurement)

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Current Assets

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 INTANGIBLE ASSETS

• IA = an identifiable non-monetary asset without

physical substance.
• Asset is identifiable :
– when it is separable (can be sold, transferred, licensed,
etc) , or
– when it arises from contractual or other legal rights.
• Examples: computer software, licence, trademarks,
patents, films, copyrights and import quotas

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Intangible assets

• Accounting measurement = conservative

– cost (less accumulated amortisation and
impairment) = commonly used
– fair values from an active market
• internally generated intangibles cannot be
recognised

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 Intangible assets

• Expenditure for an intangible item

– Does not meet definition of asset? =
EXPENSE
– Met definition of asset? = Capitalized
• it is probable that there will be future
economic benefits from the asset; and
• the cost of the asset can be reliably measured

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 Intangible assets
• Internally generated brands (publishing titles,
customer lists and similar items)
– not recognised as intangible assets (not measurable)
• An intangible asset with a finite useful life:
– amortised
• An intangible asset with an indefinite useful life:
– not amortised,
• When an intangible asset is disposed =
– the gain or loss on disposal is included in profit or loss.
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 PROPERTY, PLANT AND
EQUIPMENT
• Property, plant and equipment (PPE):
– tangible items that are held for use in the
production or supply of goods or services, for
rental to others, or for administrative purposes;
and
– are expected to be used during more than
one period

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 PROPERTY, PLANT AND
EQUIPMENT
• IAS 16: cost of an item of PPE = recognized as
ASSET if, and only if:
– it is probable that future economic benefits
associated with the item will flow to the
entity; and
– the cost of the item can be measured reliably.
• Cost of PPE = Initial Cost + certain Subsequent
cost
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 PROPERTY, PLANT AND
EQUIPMENT
Initial costs
– Some items to acquire for safety or
environmental reasons (water cleaning station for
cleaning)
• Why should be included?
– they might be inevitable to obtain future
economic benefits from other assets
– recognized as part of an asset

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 PROPERTY, PLANT AND
EQUIPMENT
Subsequent costs
• Day-to-day servicing
– Just maintain (not enhance) the future economic benefits.
– Recognized as EXPENSE
• Replacement items for PPE at regular intervals (ie:
aircraft interiors):
– derecognizes carrying amount of older part
– recognizes the cost of new part into the carrying amount of
the item
– The same applies to major inspections for faults,
overhauling and similar items
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 PROPERTY, PLANT AND
EQUIPMENT
Initial Measurement
– purchase price (plus import duties, non-refundable
purchase taxes, after deducting trade discounts
and rebates)
– any costs directly attributable to bringing the asset to the
location and condition necessary for it to be capable of
operating (ie costs of site preparation, professional fees,
initial delivery and handling, installation and
assembly, etc.)
– the initial estimate of the costs of dismantling and
removing the item and restoring the site on which it
is located.
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 PROPERTY, PLANT AND
EQUIPMENT
• Asset = in exchange for another non-monetary
asset, the cost = fair value, unless:
– the exchange transaction lacks commercial substance
or
– the fair value of neither the asset received nor the
asset given up is reliably measurable.
• If the acquired item is not measured at fair value:
– Cost = the carrying amount of the asset given up

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PPE: Derecognition

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 BIOLOGICAL ASSETS

• IAS 41 Agriculture sets out the accounting for

agricultural activity:
• Agricultural activity = the transformation of
biological assets (living plants and animals)
into agricultural produce (harvested product
of the entity's biological assets).

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• Agricultural activity can be
management of biological
transformation of a biological
asset for the purpose of
creating additional biological
assets
• Agricultural activity can be the
management of biological
transformation of biological
asset for the purpose of
harvesting agricultural produce
from that assets 26
 BIOLOGICAL ASSETS

Biological asset A living animal or plant

Bearer plant A living plant that:

(example : Tea or a. is used in the production or supply of
Rubber Tree) agricultural produce
b. is expected to bear produce for more than
one period, and
c. has a remote likelihood of being sold as agri-
cultural produce, except for incidental scrap
sales.

Agricultural produce The harvested product from biological assets

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 BIOLOGICAL ASSETS
• INITIAL RECOGNITION
– Biological asset or agriculture produce
recognize only when:
• the entity controls the asset as a result of past
events,
• it is probable that future economic benefits
will flow to the entity,
• the fair value or cost of the asset can be
measured reliably
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 BIOLOGICAL ASSETS
• MEASUREMENT
– Biological assets are measured:
• on initial recognition and at subsequent
reporting dates at fair value less estimated
costs to sell
• Unless fair value cannot be reliably measured.
– Agricultural produce is measured at fair
value less estimated costs to sell at the
point of harvest.
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 BIOLOGICAL ASSETS
• The gain of measurement of BA = Profit or loss
– on initial recognition of biological assets at fair value less
costs to sell
– Changes in fair value less costs to sell of biological assets
during a period [IAS 41.26]
• A gain on initial recognition (e.g. as a result of har-
vesting) of agricultural produce at fair value less costs
to sell are included in profit or loss for the period in
which it arises. [IAS 41.28]

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 BIOLOGICAL ASSETS

• All costs related to biological assets other

than costs to purchase biological assets that
are measured at fair value:
– recognized as expenses when incurred,

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Summary

• Defining assets
• Recognition and measurement criteria
• Current asset
• Intangible asset,
• PPE
• Biological asset
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