Lecture Wk 4: Recognition of Financial Statement Elements:

UNFINISHED. DEFINITIONS THAT I DO NOT USUALLY REMEMBER TO BE ADDED

What are the requirements for recognition on a financial statement?

1. Past events must have given the economic entity control of a resource or created a present obligation (asset or liability).

2. It must be probable that future economic benefits flow out of or into the entity because of this.

3. The amount must be able to be measured reliably (faithful, supportable estimate).

What are some common recognised current assets?

• cash and cash equivalents

• receivables

• inventory

• prepaid expenses

What are some common recognised non-current assets?

• Externally acquired goodwill

• Development costs

• Internally generated software

What are some common recognised current liabilities?

• Trade and other payables

• Borrowings

• Deferred revenue

• Provisions

• Lease liabilities

All in the short term (within reporting period)

What are common recognised non-current liabilities

• Trade and other payables

• Borrowings

• Deferred revenue

• Provisions

• Lease liabilities

All in the long term (beyond reporting period)

What are some common recognised contributors to equity?

• contributed equity

• retained earnings

• accumulated other comprehensive income

• reserves

What is the definition of capitalisation? What requirements must be fulfilled for capitalisation?

To record a cost as an asset on the balance sheet instead of charging it straight to profit/loss. To be capitalised, it must be probable that the cost produces economic benefit in the future.

What is the definition of expensing? When is it done?

Expensing is charging a cost straight to profit/loss. It is done when it is not probable that the cost produces economic benefit in the future.

What is the definition of a provision?

A provision is a liability with an uncertain timing or amount.

What is a contingent liability?

An obligation which has an unconfirmed existence and is not recognised as a liability. It does not meet recognition criteria.