Accounting Business Reporting for Decision Making

170 Accounting: Business Reporting for Decision Making

Definition

Asset

Liability

Recognition considerations

Present

economic

resource

+ Control + Past event

Present

obligation

To transfer an

economic

resource

+ + Past event

• Uncertainty of existence


• Probability of an inflow or outflow of
  economic resource


• Uncertainty of measurement


• Disclosure in notes to accounts is always
  an option

FIGURE 5.3 Summary of the asset and liability definition and recognition criteria

The reality check ‘Apple’s contingent liabilities’ details an example of the company’s contingent

liabilities as at the end of its 2014 reporting period.

REALITY CHECK

Apple’s contingent liabilities

In its 2014 statements, Apple identified contingent liabilities relating to unfavourable results of legal

proceedings, such as being found to have infringed intellectual property rights. Technology companies,

including many of Apple’s competitors, often enter into litigation, alleging patent infringement or other

violations of intellectual property rights. Also, patent holding companies seek to monetise patents they

have purchased or otherwise obtained. As Apple has grown, the intellectual property rights claims

against it have increased, and may continue to increase. In particular, the company’s cellular enabled

products compete with those of mobile communication and media device companies that hold signifi-

cant patent portfolios, and the number of patent claims against Apple has significantly increased.  The

company is vigorously defending infringement actions in a number of US jurisdictions and before the

US International Trade Commission, as well as internationally in various countries. The plaintiffs in these

actions frequently seek injunctions and substantial damages.

Source: Apple 2014, annual report, p. 262.

5.8 Format and presentation of the balance sheet

LEARNING OBJECTIVE 5.8 Describe the format and presentation of the balance sheet.

The balance sheet can be presented in a number of ways. A T-format is often used by smaller entities,

whereas a narrative format tends to be used by larger entities. A T-format lists the assets on one side

(left-hand side), and the liabilities and equity on the other (right-hand side). A narrative format presents

the assets, liabilities and equity down the page. Examples of the narrative format were presented in illus-

trative example 5.1 and figure 5.1. While it is usual to list the assets first, with current assets listed before

non-current assets, followed by the liabilities, with current liabilities listed before non-current liabilities,

and then the equity section, there is no requirement to do so.

It is usual practice to present the balance sheet for the previous reporting period in addition to the cur-

rent reporting period. Known as comparative information, it allows users to see how the entity’s finan-

cial position has changed from the previous period to the current period. When comparing the figures for

the current and previous years, users should familiarise themselves with the entity’s accounting policies

to ensure that a change in accounting policy is not the reason for the change in the reported figures.

Whether the figures on the balance sheet are expressed in whole dollars, or thousands or millions of

dollars, is at the discretion of the entity. The entity should clearly identify on the statement the monetary

value reported.