Assets, Liabilities & Equity
(Week 7)
Learning objectives
Understand:
ü Net Asset Value method
ü Current vs Non-current Assets
ü Life Cycle of an asset
ü Asset Definition and recognition criteria
ü Types of Assets
Why study assets and liabilities?
• The NET ASSET method of valuing a business or ordinary shares is based on the
carrying value of assets and liabilities.
VALUE OF A BUSINESS
= TOTAL ASSTES – TOTAL LIABILITIES
= NAV = Total Equity
NAV per share = NAV/Number of shares
Net Asset Value is how we value a business.
It is the value that a shareholder gets from this company.
This makes sense because your shareholders get your assets (some type of inflow of
benefits) less your liabilities (some type of outflow of benefits).
When you want to check how much your equity holders benefitted from the firm.
NAV per share= NAV/number of shares
Assets
We see Assets, which is further categorised into Current and Non-current assets.
How is that classification made?
Then we see within Non-current assets there are Property, Plant and Equipment, Intangible
,Current & Non-Current Assets
Current assets
• Inventory*
• Accounts receivable*
• Cash*
Non-current assets
• Property, plant & equipment*
• Investment property*
• Intangible assets*
The different types of assets you would have been exposed to would be current and non-
current assets. It’s not the first time we’re seeing this as we would have seen this in the
Investing Decision for non-current assets and current assets in the Operating decisions.
Current assets are those assets that you expect to receive the benefit within the next 12
months.
The ones we will focus on are: Inventory, Accounts/Trade Receivable, Cash/Bank. There is
Financial Assets and Non-current assets held for sale, but this is not examinable.
Non-Current assets are assets you expect to receive the benefit for a period more than the
next 12-months.
These include: Property, plant & equipment (PPE), Investment property, Intangible assets,
Financial assets, Leased assets, Agricultural assets
Life-cycle of an asset
- Initial recognition + measurement
- Subsequent recognition
- Subsequent measurement
- Derecognition
Initial recognition: asset definition and recognition criteria.
, - The first time an asset is recognised on the statement of financial position.
- Always recognise at cost, including transaction costs relating to the asset.
Initial measurement: What amount do we record in the books?
Initial implies that we’re speaking about the point in time when you purchased the asset.
Subsequent recognition: when incur additional expenditure, will it be capitalised or
expensed.
Subsequent measurement: Once you’ve had an asset, how do you measure it after initial
recognition? E.g. Revaluation, Fair value, Depreciation, Sale of it or Impairment
Derecognition: this refers to when an asset is taken off the financial statements.
SUBSEQUENT EXPENDITURE/RECOGNITION
What about amounts spent on the asset after it has been recognised (e.g. repairs, new
parts)?
Capitalise
Expense (P/L) vs (SOFP)
How do we decide on whether to expense or capitalise?
SUBSEQUENT MEASUREMENT
- Depreciation, impairment, revaluation gain/loss, fair value gain/loss
- Subsequent expenditure is costs incurred after the asset has been recognised.
-
DERECOGNITION?
When the asset comes off the statement of financial position. We have no more economic
benefits.
, IFRS: Asset definition & recognition
To be recognised on SOFP, an asset must meet:
Definition of an asset
• Present economic resource
-right
-potential to produce economic benefits
• Controlled by the entity
-ability to direct the use of and obtain economic benefits
• As a result of a past event
Recognition criteria
• Provides relevant information about the item:
-No existence uncertainty
-Probability of a flow of Economic benefits is not low
• Faithful representation
-Level of measurement uncertainty is not high
Working capital
1. Purchases
2. Credit – Trade payable. Cash – Bank
3. Inventory
4. Sale
5. Cash – Bank. Credit – trade receivable
(Week 7)
Learning objectives
Understand:
ü Net Asset Value method
ü Current vs Non-current Assets
ü Life Cycle of an asset
ü Asset Definition and recognition criteria
ü Types of Assets
Why study assets and liabilities?
• The NET ASSET method of valuing a business or ordinary shares is based on the
carrying value of assets and liabilities.
VALUE OF A BUSINESS
= TOTAL ASSTES – TOTAL LIABILITIES
= NAV = Total Equity
NAV per share = NAV/Number of shares
Net Asset Value is how we value a business.
It is the value that a shareholder gets from this company.
This makes sense because your shareholders get your assets (some type of inflow of
benefits) less your liabilities (some type of outflow of benefits).
When you want to check how much your equity holders benefitted from the firm.
NAV per share= NAV/number of shares
Assets
We see Assets, which is further categorised into Current and Non-current assets.
How is that classification made?
Then we see within Non-current assets there are Property, Plant and Equipment, Intangible
,Current & Non-Current Assets
Current assets
• Inventory*
• Accounts receivable*
• Cash*
Non-current assets
• Property, plant & equipment*
• Investment property*
• Intangible assets*
The different types of assets you would have been exposed to would be current and non-
current assets. It’s not the first time we’re seeing this as we would have seen this in the
Investing Decision for non-current assets and current assets in the Operating decisions.
Current assets are those assets that you expect to receive the benefit within the next 12
months.
The ones we will focus on are: Inventory, Accounts/Trade Receivable, Cash/Bank. There is
Financial Assets and Non-current assets held for sale, but this is not examinable.
Non-Current assets are assets you expect to receive the benefit for a period more than the
next 12-months.
These include: Property, plant & equipment (PPE), Investment property, Intangible assets,
Financial assets, Leased assets, Agricultural assets
Life-cycle of an asset
- Initial recognition + measurement
- Subsequent recognition
- Subsequent measurement
- Derecognition
Initial recognition: asset definition and recognition criteria.
, - The first time an asset is recognised on the statement of financial position.
- Always recognise at cost, including transaction costs relating to the asset.
Initial measurement: What amount do we record in the books?
Initial implies that we’re speaking about the point in time when you purchased the asset.
Subsequent recognition: when incur additional expenditure, will it be capitalised or
expensed.
Subsequent measurement: Once you’ve had an asset, how do you measure it after initial
recognition? E.g. Revaluation, Fair value, Depreciation, Sale of it or Impairment
Derecognition: this refers to when an asset is taken off the financial statements.
SUBSEQUENT EXPENDITURE/RECOGNITION
What about amounts spent on the asset after it has been recognised (e.g. repairs, new
parts)?
Capitalise
Expense (P/L) vs (SOFP)
How do we decide on whether to expense or capitalise?
SUBSEQUENT MEASUREMENT
- Depreciation, impairment, revaluation gain/loss, fair value gain/loss
- Subsequent expenditure is costs incurred after the asset has been recognised.
-
DERECOGNITION?
When the asset comes off the statement of financial position. We have no more economic
benefits.
, IFRS: Asset definition & recognition
To be recognised on SOFP, an asset must meet:
Definition of an asset
• Present economic resource
-right
-potential to produce economic benefits
• Controlled by the entity
-ability to direct the use of and obtain economic benefits
• As a result of a past event
Recognition criteria
• Provides relevant information about the item:
-No existence uncertainty
-Probability of a flow of Economic benefits is not low
• Faithful representation
-Level of measurement uncertainty is not high
Working capital
1. Purchases
2. Credit – Trade payable. Cash – Bank
3. Inventory
4. Sale
5. Cash – Bank. Credit – trade receivable
