Discuss the definition, recognition, and measurement of assets

Answer 1

Asset

The FASB's conceptual framework defines an asset as a probable future economic benefit obtained or controlled by a particular entity as a result of a past transaction or event. The IASB's conceptual framework defines an asset as a resource controlled by an entity as a
result of past events and from which a firm expects future economic benefits.
Like the definition of an asset, the criteria for asset recognition are similar under the two frameworks:

1 . The firm owns or controls the right to use the asset.
2 . The right to use the item arises as a result of a past transaction or exchange.
3 . The future benefit has a relevant measurement attribute that a firm can quantify with
sufficient reliability.

The two conceptual frameworks also discuss measurement attributes, for example, acquisition cost, current replacement cost, and net realizable value.

The definition of an asset and the recognition criteria focus on a past transaction, which provides evidence of an economic sacrifice in the past to acquire the asset, and the probability
of measurable future benefits, which involves assessments of the likelihood of the firm receiving future benefits. This definition of an asset excludes expected benefits related to rights under executory contracts, mere exchanges of promises, because authoritative guidance does not view the signing of a contract as evidence of a past transaction. This definition of an asset also excludes contingent assets, because receiving future benefits depends on the outcome of a future event.

The FASB and the IASB are reconsidering the definition of an asset and the criteria for
asset recognition. Their proposed definition emphasizes the present existence of an economic
resource and de-emphasizes the notions of a past exchange and the probability of future
benefits. Resources would satisfy the definition of an asset if (1) the entity can separate the
resources from the entity (by sale, exchange, license, or other disposal), or (2) the resources
arise from contractual or other legal rights, suggesting that negotiations between independent
parties in establishing the rights permit estimation of fair value, even if the entity cannot
exchange the item.

Asset recognition criteria also focus on which entity should recognize an asset. The issue
is particularly pertinent as it applies to asset derecognition, that is, the removal of an asset
from a firm's balance sheet. An entity should derecognize (remove from the balance sheet) an asset that it no longer controls. Standard setters have struggled with this concept and have changed the criteria several times over the last 30 years.

Asset recognition criteria also affect the treatment of expenditures that create future benefits,
but the firm cannot measure those future benefits with sufficient reliability. Examples
include expenditures for creating a brand name and researching new technologies. U.S. GAAP and IFRS differ in the extent to which they require firms to recognize a portion of these expenditures as assets versus treating the expenditures fully as expenses. A related issue is the inconsistent treatment of expenditures incurred internally versus amounts spent to acquire brand names, technologies, and other intangibles in external market transactions.