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ACC 703 (10)
Lecture

Measure PPE Revaluation.docx

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Department
Accounting
Course
ACC 703
Professor
Deidre Taylor
Semester
Winter

Description
http://www.iasplus.com/en/standards/standard15 Measure PPE Revaluation The elements of financial statements Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed the elements of financial statements. The elements directly related to financial position (balance sheet) are: [F 4.4] ◦ Assets ◦ Liabilities ◦ Equity The elements directly related to performance (income statement) are: [F 4.25] ◦ Income ◦ Expenses The cash flow statement reflects both income statement elements and some changes in balance sheet elements. Definitions of the elements relating to financial position ◦ Asset. 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. [F 4.4(a)] ◦ Liability. A liability is 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. [F 4.4(b)] ◦ Equity. Equity is the residual interest in the assets of the entity after deducting all its liabilities. [F 4.4(c)] Definitions of the elements relating to performance ◦ Income. Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. [F 4.25(a)] ◦ Expense. Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. [F 4.25(b)] The definition of income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent. Gains represent other items that meet the definition of income and may, or may not, arise in the course of the ordinary activities of an entity. Gains represent increases in economic benefits and as such are no different in nature from revenue. Hence, they are not regarded as constituting a separate element in the IFRS Framework. [F 4.29 and F 4.30] The definition of expenses encompasses losses as well as those expenses that arise in the course of the ordinary activities of the entity. Expenses that arise in the course of the ordinary activities of the entity include, for example, cost of sales, wages and depreciation. They usually take the form of an outflow or depletion of assets such as cash and cash equivalents, inventory, property, plant and equipment. Losses represent other items that meet the definition of expenses and may, or may not, arise in the course of the ordinary activities of the entity. Losses represent decreases in economic benefits and as such they are no different in nature from other expenses. Hence, they are not regarded as a separate element in this Framework. [F 4.33 and F 4.34] Recognition of the elements of financial statements Recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the following criteria for recognition: [F 4.37 and F 4.38] ◦ It is probable that any future economic benefit associated with the item will flow to or from the entity; and ◦ The item's cost or value can be measured with reliability. Based on these general criteria: ◦ An asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. [F 4.44] ◦ A liability is recognised in the balance sheet when 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. [F 4.46] ◦ Income is recognised in the income statement when an increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably. This means, in effect, that recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities (for example, the net increase in assets arising on a sale of goods or services or the decrease in liabilities arising from the waiver of a debt payable). [F 4.47] ◦ Expenses are recognised when 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. This means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets (for example, the accrual of employee entitlements or the depreciation of equipment). [F 4.49] Measurement of the elements of financial statements Measurement involves assigning monetary amounts at which the elements of the financial statements are to be recognised and reported. [F 4.54] The IFRS Framework acknowledges that a variety of measurement bases are used today to different degrees and in varying combinations in financial statements, including: [F 4.55] ◦ Historical cost ◦ Current cost ◦ Net realisable (settlement) value ◦ Present value (discounted) Historical cost is the measurement basis most commonly used today, but it is usually combined with other measurement bases. [F. 4.56] The IFRS Framework does not include concepts or principles for selecting which measurement basis should be used for particular elements of financial statements or in particular circumstances. Individual standards and interpr
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