As per the conceptual framework laid down for the financial statements, an asset is something which entails in the future economic benefits for the company as the result of the transactions or the past events. The main criteria for the recognition of an asset is recognised in the financial statements only when there is a probability that it would entail in the future economic benefits for the company and that asset possess some cost or any such other value that is capable of being measured reliably.
As per the conceptual framework laid down for the financial statements, a liability are the sacrifices that the company in the future which is the result of all of the transactions or the events that have taken place in the past. The criteria for the recognition of these liabilities is only when it is quiet probable that the future sacrifices of the economic benefits that entail to the company would be required and when the amounts are capable of being measured with utmost reliability.
As per the conceptual framework laid down for the financial statement, equity is the residual amount of the interest in the assets of the company after all of the liabilities have been deducted from the amounts of the assets.
Revenues are the inflow of cash that is the result of the business operations which entail due to an increase in the amounts of assets or reduction in the amounts of the liabilities of the company, other than the ones which relates with the contributions done by the owners which would result in an increase in the amount of equity during the period of reporting. A revenue shall only be recorded of it is probable that there would be an inflow of cash and the same is capable of measured with reliability.
An expense is something which is again incurred by the company during the ordinary course of the business (AASB, 2017).
In the given case:
Question 2:
As per the relevant Accounting standard 116 which deals with the Property, planta and equipment, the cost of any item of plant, property, equipment shall form the part of that asset only if it is probable that the future economic benefits would flow in to the entity and if the cost of that expense is capable of being measured with an utmost reliability. The items such as the spare, the stand by equipment along with the equipment that is capable of serving the equipment would form the part of that asset only if they meets the criteria of the definitions of plant, property and equipment. This standard does not lay down any hard and fast rules with regard to the exact expenses that would form the part of the asset and so, it all depends upon the individual judgement, past experience of the management with regard to the same. (AASB, 2018).
In the given case:
Question 3:
As per the AASB Accounting Standard 138 which deals with the Intangible Assets, an intangible shall be recognised in the financial statements only when it is quiet probable that some future economic benefits entail to the company and when the asset possess some cost or some value that is capable of being measured reliably. The term probable means that the chance of the economic benefits are more likely than not. When there is an expenditure that is not considered to be probable, but there is assurance that the economic benefits flows in to the entity, then that asset would not qualify in for recognition as patent.
This would not apply when the management was misguided when it came to economic benefits for the company. In respect of its implication, on the basis of the evidence which is available, the degree of certainty is very much required for the satisfaction of the recognition of the criteria as an asset that does not exist. If an asset fails the test of future economic benefits for the company, then that asset would not be qualified as such.
Further, an intangible shall be disclosed in the financial statements once the company is able to have a control over the same. It should not have a restricted access to that asset and its rights over that asset should be enforceable by law. The probability of all of the future economic benefits that would entail in to the company could be assessed and that would indicate in the best estimate of the intangible assets that would be reported in the financial statements (AASB, 2018).
An intangible shall be reported at its initial cost.
In the given case:
Both of the copyrights shall be shown under the head of: “Intangible Assets”, be it developed inside the company or be it purchased from the outside. An asset could be developed inside the company too. In that case, all of the expenses that have bene incurred towards the development of that asset would be added to its cost and would be reported in the financial statements.
Question 4:
As per the Accounting Standard, the following are the requirements:
An obligation or something that is derived in from the actions of the company by the established pattern of the past practices, when there are published policies or a sufficiently specific current statements and as the result of which the company has some valid expectation on the part of the others.
A liability is something which has a present obligation of the company which arises in from the past events and the same is required to be settled of which there is an expectation of outflow of the resources of the company entailing from the economic benefits. In the given case, the long service leave owing to the company’s employees in respect of past services would be termed as a liability since this expenses arises from the pasta activities to the company and there is an expectation that this would result in a cash flow for the company (AASB, 2018).
This would not be considered to be a liability till the end of the year 10 since that would become a liability only once the 10th year is complete. The company does know that this would be the liability that it will have to pay at some point of time, be it after 10 years. So, what it could do is that it could keep aside a part of the profit each year for this future expense in turn liability. This setting aside the amount would be covered under the head of “Provision”.
References:
Aasb.gov.au. (2018). Definition and Recognition of the Elements of Financial Statements.
Aasb.gov.au. (2018). Definition and Recognition of the Elements of Financial Statements.
Aasb.gov.au. (2018). Intangible Assets.
Aasb.gov.au. (2018). Property, Plant and Equipment.
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