AASB Framework for Recognition of Assets and Expenditure

This document discusses the AASB Framework for recognition of assets and expenditure in advance financial accounting. It explains the criteria for asset recognition and the recognition of expenses in the ordinary activities of a firm. The document also explores the relationship between expenditure and acquiring assets.

Running head: ADVANCE FINANCIAL ACCOUNTING
ADVANCE FINANCIAL ACCOUNTING
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1ADVANCE FINANCIAL ACCOUNTING
Part A
AASB Framework for recognition of assets
AASB provides the following recognition criteria for asset:-
 The future economic benefit of an asset has the potential to contribute in the cash flow
of the entity either directly or indirectly. This potential also contributes in the
operating activities of the firm (Bond, Govendir & Wells, 2016). When the alternative
process of manufacturing costs in lowers the cost of production, this may form of the
convertibility into cash or the capacity of reducing cash flow.
 A firm usually employ its assets to produce the good or services to satisfy the want of
the customers. As the customer pay for these good and services so it need to satisfy
the need and want of the customers (Dunbar & Laing, 2017). Cash also render the
service to the firm as cash has the command over other resources.
 The future benefits of the asset can affect the firm in the following ways:-
1. It can be used in single or in combined way to produce the goods and
services;
2. Can be exchange for other assets;
3. Can be used to meet the liabilities; or
4. Can be distributed among the owners.
 Many asset as the physical presence like plant and properties. While, the some asset
does not have any physical presence like patent.
 Some assets are associated with the legal rights along with the ownership right.
Although, the identification of the asset not required the ownership right like lease
hold properties.
AASB Framework for recognition of expenditure

2ADVANCE FINANCIAL ACCOUNTING
The AASB Framework provides the following recognition for exploration and
evaluation expenditure of the firm:-
 AASB defines the expenses as the losses and expenses that arises in the course of the
ordinary activities of the firm (Linnenluecke, 2015). For example: - cost of sale,
depreciation and wages. They mainly take the outflow of the in the cash or cash
equivalents.
 Losses present the other items that qualifies the definition of the expenses and may or
may not arise in the normal course of the business. Loss represent the loss in the
economic benefits of the company.
 Losses also includes those disasters that effects the economic benefits of the
company like flood, fire or any other natural disasters. The expenses also includes the
unrealised losses. For example: - fluctuation in the foreign stock rate.
AASB Framework for evaluation expenditure consistent with the asset
There is a close relation between the expenditure and the acquiring assets but the both
are not necessarily coincide. Therefore, whenever a firm incurred expenses it means any
future benefit is associated with this expenditure (Jin, Shan & Taylor, 2015). This provides
the evidence the future benefit will generate but does not concludes that the any item is
obtained, which may be an asset. Similarly, in the absence of the related expenditure does not
preclude an asset and hence become candidate for balance sheet. For example:- a donated
item to the firm may satisfies the definition of the asset.

3ADVANCE FINANCIAL ACCOUNTING
References
Bond, D., Govendir, B., & Wells, P. (2016). An evaluation of asset impairment decisions by
Australian firms and whether this was impacted by AASB 136.
Dunbar, K., & Laing, G. K. (2017). Deconstructing the Accounting Standard AASB 13 Fair
Value: Exit vs Entry Price for Assets. Journal of New Business Ideas & Trends, 15(2).
Jin, K., Shan, Y., & Taylor, S. (2015). Matching between revenues and expenses and the
adoption of International Financial Reporting Standards. Pacific-Basin Finance
Journal, 35, 90-107.
Linnenluecke, M. K., Birt, J., Lyon, J., & Sidhu, B. K. (2015). Planetary boundaries:
implications for asset impairment. Accounting & Finance, 55(4), 911-929.