196 Accounting: Business Reporting for Decision Making
other elements) as per the accounting equation. There are no definitive rules to assist the decision
of whether an item should be recognised. The recognition decision requires judgement. The over-
arching consideration when deciding to recognise an asset or a liability (and any related income,
expenses or changes in equity) is whether the recognition provides financial statement users with
relevant information about the asset or the liability and about any income, expenses or changes in
equity, a faithful representation of the asset or the liability and of any income, expenses or changes
in equity, and information that results in benefits exceeding the cost of providing that information.
Factors of uncertainty and unreliable measurement may result in non-recognition. An entity always
has the option to disclose information concerning items not recognised.5.8 Describe the format and presentation of the balance sheet.
The balance sheet is usually presented in a narrative format or a T-format. A balance sheet in
narrative format lists the assets, liabilities and equity in a column format. The T-format lists the
assets on one side, with the liabilities and equity on the other side. It is usual for the balance
sheet to report the financial figures for the current period and the corresponding previous reporting
period. If an entity has subsidiary entities, then the balance sheet reports the consolidated entity
results.5.9 Describe the presentation and disclosure requirements for elements on the balance sheet.
Assets and liabilities are assigned either a current or non-current classification on the basis of when
the economic benefits (sacrifices) are expected to occur. If the benefits (sacrifices) are expected to
occur within 12 months of the end of the reporting period or within the entity’s operating cycle, a
current classification is appropriate. For assets (liabilities) where the benefit (sacrifice) is expected
to occur beyond the next 12 months or operating cycle, a non-current classification results. Within
the current and non-current sections, assets and liabilities are classified according to their nature
or function. Typical asset classifications include cash; receivables; inventories; investments; prop-
erty, plant and equipment; intangibles; tax assets; and other assets. Typical liability classifications
include payables; interest-bearing liabilities; provisions; and tax liabilities. The equity classi-
fications on the balance sheet are capital (contributed equity), reserves, retained earnings, and
non-controlling interests.
A breakdown of the items within the various classifications is usually included in the notes to
the accounts. The terms given to various elements on the balance sheet, and the extent to which
entities aggregate elements for the purposes of balance sheet disclosure, vary according to the
entity structure.5.10 Discuss the measurement of various assets and liabilities on the balance sheet.
Numerous measurement systems can be used to measure elements on the balance sheet.
These include historical cost and current value. The overarching consideration for selecting
a measurement basis is the usefulness of information for users’ decision making. At the time
of acquisition, historical cost reflects an item’s fair value. Subsequent to acquisition, receiv-
ables are recorded at their expected cash equivalent and inventory is measured at the lower
of cost and net realisable value. Property, plant and equipment can either remain at their cost
price or be revalued regularly to fair value. Regardless, the carrying amount of an asset must
not exceed its recoverable amount. If it does, the asset is impaired and must be written down.
There are some asset classes (such as agricultural assets and derivative financial instruments)
where accounting rules specify that the assets must be recognised at their fair value. Non-cur-
rent assets with limited lives must be depreciated. Goodwill cannot be revalued and identifi-
able intangible assets can only be revalued if an active and liquid market exists. Goodwill and
intangible assets must be tested for impairment at least annually. The value assigned to such
assets on the balance sheet is their cost or revalued amount, less the accumulated depreciation
charges, less any impairment charges. It is important for a user to identify the basis for meas-
uring assets and liabilities on the balance sheet.