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Principles of Accounting
LECTURE 2
Study Methodology & Class Discipline

• Ensure you attend class with A PEN, A NOTEBOOK AND A CALCULATOR.

• At IBA we follow Blended Learning Methodology, we will make use of online
resources available like videos, MOOCs, etc as a part of our learning.
• Concepts will be thoroughly explained. If you have any questions, please do not
hesitate to ask.
• Some numerical problems may be solved in the class but the responsibility of
attempting remaining exercises and problems rests with the students
• In Accounting, PRACTICE is essential to gauge the concepts clearly.
• You will NOT be allowed to use phones and/or laptops during the class.
• Attendance can be taken at anytime during the class.
• You are NOT allowed to leave the class after the attendance has been taken.
5 Elements of Accounting – ASSETS
IFRS Definitions and explanation

In order for an asset to be recognized in the financial statements, it must follow

definition laid down in the IASB Framework:

Asset is a resource controlled by the entity as a result of past events

and from which future economic benefits are expected to flow to
the entity (IASB Framework).
5 Elements of Accounting – ASSETS
IFRS Definitions and explanation

In order for an asset to be recognized in the financial statements, it must follow

definition laid down in the IASB Framework:

Asset is a resource controlled by the entity as a result of past events

and from which future economic benefits are expected to flow to
the entity (IASB Framework).
 5 Elements of Accounting – ASSETS
IFRS Definitions and explanation

It is worth noting that the framework defines asset in terms of

• Control rather than ownership. While control is generally evidenced through ownership,
this may not always be the case. Therefore, an asset may be recognized in the financial
statement of the entity even if ownership of the asset belongs to someone else. For
instance, if a machine is leased to a company for the entire duration of its useful life,
the machine may be recognized in its Statement of Financial Position (Balance Sheet)
since the entity has control over the economic benefits that would be derived from the
use of the asset. This illustrates the use of Substance Over Form whereby the economic
substance of the transaction takes precedence over the legal aspects of a transaction in
order to present a true and fair view.
 5 Elements of Accounting – ASSETS
IFRS Definitions and explanation

In order for an asset to be recognized in the financial statements, it must follow

definition laid down in the IASB Framework:

Asset is a resource controlled by the entity as a result of past events

and from which future economic benefits are expected to flow to the
entity (IASB Framework).

Apart from meeting the above definition, the Framework has advised the following
recognition criteria that ought to be met before an asset is recognized in the financial
statements.
• The inflow of economic benefits to entity is probable.
• The cost/value can be measured reliably.
 5 Elements of Accounting – ASSETS
IFRS Definitions and explanation

It is worth noting that the framework defines asset in terms of

• Since, by definition, an asset must be controlled by the entity in order for it to be
recognized in the financial statements, certain 'Assets' would not qualify for recognition.
Consider a highly dedicated workforce. Generally speaking, a hardworking and
motivated workforce is the most valuable asset of any successful company. But does an
entity has control over its workers? The answer is no, because an employee may quit an
organization any day and seek employment in a rival firm much to the detriment of the
company. The second test ensures that the financial statements present assets that can
be measured objectively. For instance, how does a person place value on something
subjective such as customer loyalty or a dedicated employee?
Rules of Debit & Credit

Assets – When increase debit – When decrease credit

Liabilities – When increase credit – When decrease debit

Capital – When increase credit – When decrease debit

Expenses – When increase debit – When decrease credit

Income – When increase credit – When decrease debit

Example: Accounting business transactions

1. Mr. Zahid started food business by investing cash Rs.100,000.

2. He purchased inventory/stock worth Rs. 10,000.
3. He purchased furniture costing Rs. 25,000.
4. He paid utility expenses Rs. 5,000
5. Mr. Zahid borrowed Rs 100,000 from Mr. Zeeshan.