LEC_4 - Lecture Four Recognition and Measurement XJTLU BU33055 2011 LEC 4 1 Recognition and Measurement of the Elements in the Financial Statements

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1 XJTLU BU33055 2011 LEC 4 1 Lecture Four: Recognition and Measurement XJTLU BU33055 2011 LEC 4 2 Recognition and Measurement of the Elements in the Financial Statements s Assets, Liabilities, Equity, Revenues, Expenses (the IASB emphasises Assets and Liabilities) s Basic Recognition and Measurement Issues 1. Primacy of definitions 2. Hierarchy of decisions s Note: there are alternatives to historical cost measurement
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2 XJTLU BU33055 2011 LEC 4 3 Primacy of Definitions s IASB: Assets > Expenses s IASB: Liabilities > Revenue s See the asset and liability definitions on the previous slides s The measurement of “Assets” directly affects Expenses (most commonly, assets are measured at Historical Cost) s The definition of “Liabilities” has a major effect on the financial statements XJTLU BU33055 2011 LEC 4 4 Assets / Liabilities s The IASB approach is very clear in its emphasis on Assets / Liabilities (i.e. the Balance Sheet before the Income Statement) s The outcome may be different from a system based on the expense / revenue approach, which as a primary aim ‘matches’ expenses and revenues (because the first stage of recognising an asset is that it must meet the definition of an asset)
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3 XJTLU BU33055 2011 LEC 4 5 Liabilities Note that “liabilities” may either be: s Clear, exact amounts (e.g. creditors, bank loans) or s Of uncertain timing or amount (e.g. pensions to retired employees, one year guarantees to pay for repairs) – these are called provisions * Estimates need to be made in the case of provisions XJTLU BU33055 2011 LEC 4 6 Hierarchy of Decisions s Having adopted the asset / liability approach, there are three stages of decisions: IASB Framework - 1. Is there an asset / liability ? (See the definitions ) 2. Recognition - should the asset or liability be recognised in the FS ? (Does it meet the Framework’s recognition criteria?) 3. Measurement - initially this should be at historical cost, there may also be delivery charges, installation costs etc.
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4 XJTLU BU33055 2011 LEC 4 7 1: Definitions s You should learn (preferably by heart) how the IASB Framework defines an Asset and a Liability s These definitions underpin all decisions on
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This note was uploaded on 05/22/2011 for the course BU 36101 taught by Professor John during the Spring '11 term at University of Liverpool.

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LEC_4 - Lecture Four Recognition and Measurement XJTLU BU33055 2011 LEC 4 1 Recognition and Measurement of the Elements in the Financial Statements

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