Criteria for recognition in the financial statements
Each type of financial reporting consists of articles grouped into sections. Enterprise enters information to a particular article only when it meets certain criteria.
In that regard be analyzed for compliance with these criteria and submission of articles reporting. This process is called admission of financial information.
The object of accounting is considered an asset if it meets three conditions:
1. The company received it from past transactions or events (purchase, construction), because to buy not buy the assets.
2. The resulting resources embodying future benefits. The future economic benefit - the ability of a potential asset to facilitate the flow of venture cash or cash equivalents.
3. Resources are monitored now. This control stems from ownership of the assets or other legal rights (the right to use the asset), which enables the company to control the future benefits that it expects to receive from the asset.
It should be noted that in some cases resource may meet the definition of an asset even in the absence of legal controls. For example, keeping their "know-how", the company can monitor the benefits expected to be obtained from it.
4. There is a possibility of reliable estimation of the asset. If the asset can not reasonably estimate is not included in the balance sheet. For example, if the company can not reliably estimate the cost of an intangible asset, it is not reflected in the balance sheet, but may be described in the notes if the information about this property is essential.
To determine the carrying amounts of assets, the following types of ratings
1. The historical (actual) cost - is the amount of cash or cash equivalents, or other forms of compensation issued at the time of purchase. The form of compensation may be other assets or assumed liabilities. Historical cost of acquired assets includes the cost of acquisition and the cost of transportation, assembly, customs fees and so on. The historical cost of assets created now (finished goods, WIP) - is their production cost.
2. Current (reproductive) costs - a sum of cash, cash equivalents or other forms of compensation that must be paid for the acquisition (creation) of the same asset at the moment. The term "reproductive cost" is usually applied to assets periodically updated (stocks, fixed assets).
3. Cost of sales - a sale price of an asset in the normal course of business.
Net realizable value excludes the costs of completion and asset sales. To determine the net realizable value is the estimated selling price of used and estimated costs.
4. Present value - is the present (discounted) value of future net cash flows expected from the asset in the normal course of business.
5. The fair value of the asset - is the amount for which an asset could be sold between knowledgeable, willing and independent partners, that is, acting in their own interests.
In economic practice, the most commonly used valuation of assets at historical cost, but if stocks are measured, the lowest accepted the two estimates - cost or net realizable value. Long-term liabilities are recorded at present value.