1. Financial Accounting II Lecture 20

2. Elements of Financial Statements
Measurement of financial position in the balance sheet
Assets
Liabilities
Equity

3. Elements of Financial Statements
Measurement of performance in the income statement
Income
Expenses

4. Recognition of Elements of Financial Statements
Assets – It is probable that future economic benefits will flow to the entity and the asset has cost or value that can be measured reliably.

5. Recognition of Elements of F/S
Liabilities – It is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably. Equity is also a liability.

6. Recognition of Elements of F/S
Income – An increase in the future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably.

7. Recognition of Elements of F/S
Expenses – A decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably.

12. Measurement of Elements of F/S
The process of determining the monetary amounts at which the elements of F/S are to be recognised and carried in the B/S and P/L. Following measurement methods are used in different situations
Historical cost – consideration paid (payable) or received (receivable) at the time of recording of transaction (no relation to current costs)

13. Measurement of Elements of F/S
Current cost – the consideration that would have to be paid if a same or an equivalent asset is acquired.
Realisable value – the consideration that would be realised by selling an asset in an orderly disposal.
Present value – A current estimate of the present discounted value of the future net cash flows in the normal course of business.