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13 - Assets

from Part II - Some specifics

Published online by Cambridge University Press:  02 November 2009

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Summary

Introduction

The key questions that arise in relation to assets are: what is the definition of an asset; which assets are recognised on balance sheet; when are they first recognised; how are the assets that are recognised on balance sheet measured; and whether the assets should be written down for impairment. There are also questions of how assets should be classified and presented on balance sheets, and questions of depreciation. These issues are considered in turn.

Definition of an asset

In a formal sense, the IASB's Framework for the Preparation and Presentation of Financial Statements defines an asset as ‘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’. The Framework explains that:

‘The future economic benefit embodied in an asset is the potential to contribute, directly or indirectly, to the flow of cash and cash equivalents to the entity. The potential may be a productive one that is part of the operating activities of the entity. It may also take the form of convertibility into cash or cash equivalents or a capability to reduce cash outflows, such as when an alternative manufacturing process lowers the costs of production’.

Less formally, an asset is something of value that a company controls.

Recognition of assets

From the definition, it might appear that all a company's assets are recognised on the balance sheet. In fact, they are recognised only if they meet the recognition criteria: it is probable that the entity will get the economic benefits of the asset and that the asset can be measured reliably.

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Publisher: Cambridge University Press
Print publication year: 2009

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  • Assets
  • Peter Holgate, Elizabeth Buckley
  • Book: Accounting Principles for Non-Executive Directors
  • Online publication: 02 November 2009
  • Chapter DOI: https://doi.org/10.1017/CBO9780511575631.015
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  • Assets
  • Peter Holgate, Elizabeth Buckley
  • Book: Accounting Principles for Non-Executive Directors
  • Online publication: 02 November 2009
  • Chapter DOI: https://doi.org/10.1017/CBO9780511575631.015
Available formats
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Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

  • Assets
  • Peter Holgate, Elizabeth Buckley
  • Book: Accounting Principles for Non-Executive Directors
  • Online publication: 02 November 2009
  • Chapter DOI: https://doi.org/10.1017/CBO9780511575631.015
Available formats
×