Financial Accounting for Decision Makers

Activity 2.3
■ 
The economic resource must be capable of measurement in monetary terms
. Often, an 
economic resource cannot be measured with a great deal of certainty. Estimates may be 
used that ultimately prove to be inaccurate. Nevertheless, it can still be reported as an 
asset for inclusion in the statement of financial position as long as a sufficiently faithful 
representation of its measurement can be produced. There are cases, however, where 
uncertainty regarding measurement is so great that this cannot be done. Take for example, 
the title of a magazine (such as 
Hello!
or 
Vogue
) that has been created by its publisher. 
While it may be extremely valuable to the publishing business, any attempt to measure this 
resource would be extremely difficult: it would have to rely on arbitrary assumptions. As a 
result, any measurement produced is unlikely to be useful. The publishing title will not, 
therefore, appear as an asset in the statement of financial position.
Note that 
all
the characteristics identified must exist if a resource is to qualify for recognition. 
This will strictly limit the resources that are regarded as an asset for inclusion in the statement 
of financial position. Once included, an asset will continue to be recognised until the eco-
nomic benefits are exhausted, or the business disposes of it.
Figure 2.2 summarises the above discussion in the form of a decision chart.
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CHAPTER 2
MEASURING AND REPORTING FINANCIAL POSITION
Figure 2.2 
Identifying an asset for inclusion in the statement of financial position
Accounting
asset
Not an
accounting
asset
Does the resource provide a right for the
potential to receive economic benefits?
Is this right also available to other parties
at no great cost?
Can the business exert control over the resource
as a result of a past transaction or event?
Can the resource be faithfully
represented in monetary terms?