For an asset to be recorded in the financial statements should meet this definition laid by IASB Framework under IAS 16;
“IAS 16 Asset is a resource which is controlled by the entity, as a result of past event and from which economic benefit are expected to flow to the entity”
In an IAS 16 definition, you have noticed that control term used rather than ownership, this may not be the case every time. A company can record an asset if it does not have the ownership of the assets according to this definition. The substance over form term will be appropriate here which means that transaction takes precedence over the legal aspects, for the presentation of true and fair view.
An asset must be controlled by the entity for in order to recognize in the statements. There are some assets, which could not qualify as assets, for example, skilled workforce is a value able asset for a successful company. However, the question here is that company have control over the workforce? The answer here is no because an employee can leave the company at any time and can join other company. Therefore, a company cannot recognize such assets in the financial statements.
There are some other criteria’s too which should be met for the recognition, for example, the inflow of economic benefits to the entity is probable and the value of an asset can be measured reliably. The economic benefits flow to the entity using the asset or sale of the asset. The second criteria ensure that the asset has some measurable value to be recognized in the financial statements. For example, how can we calculate the loyalty of the customers and hardworking employee skills?
IAS 38 Intangible Assets
Now it is becoming common in the football industry to capitalize the cost of the acquisition of player’s registration as intangible assets in the financial statements and after that, these cost will be amortized over the contract period of the employees. An intangible recognition criterion comes under the IAS 38, the club has the control over the player during their contract period, and values will recover through the player’s performance or through transfer fee. Impairment will be charged to the intangible assets if the carrying value is higher than its sale value. The intangible assets recorded by different clubs in 2012 are as follows
- Arsenal £ 86 million
- Liverpool £ 120.8 million
- Manchester City £ 226 million
Economic benefits are the cash flow towards the company, past events are the contract, which has done in previous days, and measurement is the reliability of the cost of the players.
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