Historical cost accounting and IAS 38: Difference between pages

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''Financial reporting - measurement.''
International Accounting Standard 38, dealing with intangible assets.


Historical cost accounting is the usual traditional basis of measurement in published financial statements, based on the orginal cost of assets to the reporting entity.
Issued by the International Accounting Standards Board.  


It was generally favoured because historical cost is an objective measure which can be relatively easily verified, for example by an auditor. 
IAS 38 requires an entity to recognise an intangible asset, whether purchased or self-created (at cost) if, and only if:


The use of historical cost accounting can however be challenged on conceptual grounds, especially in times of high inflation or volatility in current market values.
*It is probable that the future economic benefits that are attributable to the asset will flow to the entity; and
*The cost of the asset can be measured reliably.


For this reason, fair value accounting supplements and replaces historical cost accounting for a number of items. Fair value measurement is based much more closely on current market values.
 
The criteria for recognising internal development costs as assets under IAS 38 include all of:
 
#The technical '''feasibility''' of completing the intangible asset (so that it will be available for use or sale); and
#'''Intention''' to complete and use or sell the asset; and
#'''Ability''' to use or sell the asset; and
#Existence of a '''market''' or, if to be used internally, the '''usefulness''' of the asset; and
#Availability of '''adequate''' technical, financial, and other '''resources''' to complete the asset.
 
 
If any of these criteria is '''not''' met, then the expenditure is a cost, and not an asset.




== See also ==
== See also ==
* [[Amortised cost]]
* [[Capitalise]]
* [[Current cost accounting]]
* [[Development]]
* [[Fair value]]
* [[Expense]]
* [[Financial reporting]]
* [[FRS 102]]
* [[Historical cost]]
* [[IAS 16]]
* [[Measurement]]
* [[Intangible assets]]
* [[Short termism]]
* [[International Financial Reporting Standards]]
* [[Recognition]]
* [[Research & development]]
 
 
== External link ==
*[https://www.iasplus.com/en/standards/ias/ias38 IAS 38 - IAS Plus]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Accounting,_tax_and_regulation]]
[[Category:Compliance_and_audit]]

Revision as of 08:00, 21 March 2022

International Accounting Standard 38, dealing with intangible assets.

Issued by the International Accounting Standards Board.

IAS 38 requires an entity to recognise an intangible asset, whether purchased or self-created (at cost) if, and only if:

  • It is probable that the future economic benefits that are attributable to the asset will flow to the entity; and
  • The cost of the asset can be measured reliably.


The criteria for recognising internal development costs as assets under IAS 38 include all of:

  1. The technical feasibility of completing the intangible asset (so that it will be available for use or sale); and
  2. Intention to complete and use or sell the asset; and
  3. Ability to use or sell the asset; and
  4. Existence of a market or, if to be used internally, the usefulness of the asset; and
  5. Availability of adequate technical, financial, and other resources to complete the asset.


If any of these criteria is not met, then the expenditure is a cost, and not an asset.


See also


External link

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