Accounting Business Reporting for Decision Making

CHAPTER 5 Balance sheet 165

Employee entitlements

Management judgement is applied in determining the following key assumptions used in the calculation

of long service leave at balance date:

•   future increases in wages and salaries;

•   future on-cost rates; and

•   experience of employee departures and period of service.

Share-based payments expense

At each reporting date the Company estimates the number of equity instruments expected to

vest in accordance with the accounting policy stated in note 1(w). The number of equity instruments

that are expected to vest is based on management’s assessment of the likelihood of the vesting

conditions attached to the equity instruments being satisfied. The key vesting conditions that are

assessed are earning per share targets and required service periods. The impact of any revision in

the number of equity instruments that are expected to vest is recognised as an adjustment to the

share based payments expense in the reporting period that the revision is made and is disclosed in

note 5.

Source: JB Hi-Fi Ltd 2015, preliminary final report, pp. 62, 71.

5.4 The definition of assets

LEARNING OBJECTIVE 5.4 Apply the asset definition criteria.

We have been referring to the elements of the balance sheet (assets, liabilities and equity), and will now

re-examine the definitions introduced in chapter 1. Accounting professions and regulators in various

countries, including Australia, New Zealand and the United States, have developed frameworks for

the preparation and presentation of financial statements. Such frameworks address matters such as the

objective of financial statements, the assumptions underlying financial statements and the qualitative

characteristics of financial statements, define the elements of financial statements (assets, liabilities,

equity, income and expenses) and identify the recognition criteria to be applied to the elements. They

also guide the development of accounting standards. As is the case with the globalisation of accounting

standards, conceptual frameworks are also converging. References throughout this chapter, and sub-

sequent chapters, are to the IASB’s Conceptual Framework for Financial Reporting (Conceptual

Framework). The IASB is currently working on a revised Conceptual Framework to improve financial

reporting by providing a more complete, clear and updated set of concepts. The project is focusing

on the reporting entity, elements of financial statements (including recognition and derecognition),

measurement, presentation and disclosure. An exposure draft was issued in May 2015 with the expec-

tation that finalisation will occur towards the end of 2015. The focus in this chapter will be on the

proposed revised definitions.

Asset definition

The proposed asset definition in the revised Conceptual Framework is ‘an asset is a present economic

resource controlled by the entity as a result of past events’ where an economic resource is a right that has

the potential to produce economic benefits. The essential characteristics for an asset are:

1. a present economic resource


2. the resource must be controlled by the entity


3. the resource must be as a result of a past event.

Present economic resource

An economic resource is a right that has the potential to produce economic benefits. The rights can

be established by contract or legislation, or arise from a constructive obligation of another party. In