GODFREY

HODGSON
HOLMES
TARCA

CHAPTER 7
ASSETS
 Assets defined
IASB (AASB) Framework for the Preparation and
Presentation of Financial Statements:

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

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

exchangeability
recognition rules

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 Future economic benefits
Future economic benefits are the potential to contribute,
either directly or indirectly, to the flow of cash and cash
equivalents to the entity
profit seeking entity
not-for-profit entity
Relate to economic resources
scarcity
utility

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 Future economic benefits
An asset is something that exists now
Has the capability of rendering service or benefit
currently or in the future
Distinguish between the object, such as a building or
machine, and the service or benefit embodied in it

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 Control by an entity
The economic benefit must be controlled by the entity
An entitys right to use or control an asset is never
absolute
Ownership is often concurrent with control, but it is not
an essential characteristic of an asset
Does not rely on legal enforceability

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 Past events
Control as a result of a past event
Planned assets are excluded
Event can be interpreted in different ways
executory contracts

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 Exchangeability
Some argue that a 4th essential characteristic is that an
asset be exchangeable
Separable from an entity

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 Exchangeability
MacNeal
A good that lacks exchangeability must lack economic value
because its purchase or sale must forever remain impossible,
and thus no market price for it can ever exist
goodwill
subject to evaluation not measurement

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