IAS 16 – Property, Plant and Equipment

1 Non-current Assets

Till now we understand that non-current asset is a resource used by an asset for more than one accounting period. Further, non-current assets can be classified as tangible and intangible non-current assets.

And before a resource is treated as an asset and recorded in the financial statements of the company it must fulfill first of all the definition of asset and then the recognition criteria.

According to IASB Framework an asset is a resource:

1. Controlled by an entity
2. From which economic future benefits are expected to flow to the entity

From the above definition we understand two major things:

1. A resource does not need to be owned by an entity to be treated as an asset. Even control is enough to constitute a resource as an asset. Where control means control on the economic benefits of the resource.
2. But just having a physical control is not enough the benefits must be enjoyed by the entity which is only possible when entity has a significant control over the resource. In short, control here refers to the control of the economic benefits of the asset and not the title of ownership or possessing the asset.

However, even if a resource qualifies as an asset, an entity cannot write it in the financial statements (Statement of Financial Position) unless recognition criteria are fulfilled. IASB Framework provides the recognition criteria for recognition of assets in balance sheet which is as follows:

An asset is recognised in the balance sheet when it is probable that:

1. the future economic benefits will flow to the entity
2. the asset has a cost or value that can be measured reliably.

From the above criteria we can understand that one additional condition has been applied over the definition of asset i.e. cost or value of the asset can be ascertained reliably.