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(77)-RECOGNITION AND MEASUREMENT IN FINANCIAL STATEMENTS

Wednesday, January 13, 2010

Recognition and Measurement in Financial Statements

Recognition in financial statements

Three stages are used for recognition if assets and liabilities.
  1. Initial recognition
  2. Subsequent re measurement
  3. De recognition


Measurement of financial statements


For this, with its emphasis on current values, is fairly radical and controversial. The following approach is taken.

  • Initially, when an asset is purchased or liability incurred, the asset/liability is recorded at the transaction cost, that is historical cost, which at that time is equal to current replacement cost.
  • An asset/liability may subsequently be “remeasured”. In a historical cost system, this can involve writing down an asset to its recoverable amount. For a liability, the corresponding treatment would be amendment of the monetary amount to the amount ultimately expected to be paid.
  • Such re-measurements will, however, only be recognized if there is sufficient evidence that the monetary amount of the asset/liability has changed and the new amount can be reliably measured.

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