1. Prepared by Arabella Volkov University of Southern Queensland

2. References Text – Chapter 14 Assets, liabilities and owners’ equity

3. Learning Objectives At the conclusion of this lecture, you should have an appreciation of: issues involved in defining assets, applying those definitions, and why the definition and recognition criteria are both important and controversial issues involved in defining liabilities, applying those definitions, and why the definition and recognition criteria are both important and controversial

4. Learning Objectives At the conclusion of this lecture, you should have an appreciation of: how and why the issues relating to asset and liability definition and recognition criteria interrelate with issues concerning the definition and recognition of owners’ equity

5. Learning Objectives At the conclusion of this lecture, you should have an appreciation of: issues involved in applying definitions and recognition criteria in relation to the accounting for specific financing arrangements

6. Assets SAC 4 defined Assets as: –future economic benefits controlled by the entity as a result of past transactions or events. 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

7. Assets Three essential components: future economic benefits control by reporting entity past transactions or events –exchangeability –recognition criteria

8. Assets Future economic benefits Paton A property is any consideration, material or otherwise, owned by a specific business enterprise and of value to that enterprise Paton and Littleton ‘Service’ is the significant element behind the account, that is service-potentialities, which, when exchanged, bring still other service-potentialities into the enterprise

9. Assets Control by reporting entity: Ijiri Accounting is not concerned with economic resources in general, but only those which are under the control of a given entity SAC 4 para 24 supported Ijiri Does not rely on legal enforceability

10. Assets Past transactions or other past events: Past transactions Planned events excluded Executory contracts –May meet first test of asset

11. Assets Exchangeability: Separable from an entity 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

12. Assets Recognition criteria: Framework –‘probable’ not included in definition –Assets only to be recognised when probable future economic benefits will eventuate –Probability critical in deciding when to recognise asset Recognition rules –Conventions and authoritative statements

13. Assets Recognition Criteria: Reliance on the law Determination of economic substance of the transaction or event Use of the conservatism principle: anticipate losses, but not gains Ability to measure the value of the asset

14. Liabilities Framework definition of liabilities: A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits

15. Liabilities Present obligations: legal enforceability settlement of liability deferred credits

16. Liabilities Past transactions or events: What kind of past event is acceptable? –Wholly executable contracts Loss contingencies: superannuation long-service leave

17. Liabilities Recognition criteria: Reliance on the law Determination of the economic substance of the transaction or event Use of the conservatism principle Ability to measure the value of the liability

18. Owners’ equity Framework defines equity as: –the residual interest in assets of the entity after deduction of its liabilities. Owners’ equity is a residual claim

19. Owners’ equity Essential features: rights of the parties economic substance

20. Owners’ equity Capital: Legal prescription Distinguishing between owners’ equity and liabilities Classifications within owners’ equity

21. Owners’ equity Accounting for specific financing arrangements: Repurchase of assets Employee shares

22. Summary The Framework has proposed definitions of assets, liabilities and owners’ equity It outlines specific recognition criteria depending on the nature of the item Definitions are general and need interpretation

23. Key terms and concepts Assets Liabilities Owners’ equity Probable Reliably measured Recognised

24. Where to get more information Other courses Accounting handbook List books Articles Electronic sources