CONCEPT NO 5 - CONCEPT NO 5 RECOGNITION AND MEASUREMENT...

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CONCEPT NO 5 RECOGNITION AND MEASUREMENT
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Definitions Recognition is the process of formally recording or incorporating an item into the financial statements of an entity as an asset, liability, revenue, expense, or the like. Measurement is the process of assigning number to attributes of an object. Attribute refer to the traits or aspects of an element to be quantified or measured (e.g., historical cost and current cost)
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Recognition Criteria Definition Measurability Relevance Reliability
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Definition The item meets the definition of an element of financial statements. A resource must meet the definition of an asset An obligation must meet the definition of a liability. A change in equity must meet the definition of a revenue, expense, gain or loss to be recognized as a component of comprehensive income.
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Measurability The asset, liability, or change in equity must have a relevant attribute that can be quantified in monetary units with sufficient reliability.
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Measurement Attributes Items currently reported in financial statements are measured by different attributes, depending on the nature of the item and the relevance and reliability of the attribute measured. Historical cost Current cost Current market value Net realizable (settlement) value Present (discounted) value of future cash flows
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Historical cost Assets - The amount of cash or its equivalent paid to acquire an asset. For example, property, plant and equipment, inventory. Liabilities – the amount of cash or its equivalent received when the obligation was incurred
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Current cost The amount of cash or its equivalent that would have to be paid if the same or an equivalent asset were acquired currently. An example includes inventory (LCM)
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Current market value The amount of cash or its equivalent that could be obtained by selling an asset in orderly liquidation. An example is market securities (AFS and trading).
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Net realizable (settlement) value Assets - The nondiscounted amount of cash or its equivalent into which an asset is expected to be converted in due course of business less direct cost necessary to make that conversion
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CONCEPT NO 5 - CONCEPT NO 5 RECOGNITION AND MEASUREMENT...

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