Control of an financial reresource – This is all about: A current economic reresource regulated by the entity as an outcome of past events.

You are watching: An economic resource of an entity is:

Two extremely easy examples to start with:

Pat Co has purchased a patent for $20,000. The patent provides the company sole usage of a particular production process which will certainly save $3,000 a year for the following 5 years.

This is an asset, albeit an intangible one. Tright here is a previous event, control and also future economic benefit (through cost savings).

Baldwin Co (the company) paid Don Brennan $10,000 to set up a auto repair shop, on problem that priority treatment is given to cars from the company’s fleet.

This cannot be classified as an ascollection. Baldwin Co has actually no control over the auto repair shop and it is hard to argue that tbelow are ‘future financial benefits’.

The existence of an asset, particularly in terms of control, is not reliant on:

Tright here have regularly been disagreements that control is implicit in the meaning of a source as a appropriate that the reporting entity controls the resource. It has actually been chose to incorporate and also define ‘Control’ clearly to boost clarity.

The Conceptual Framework-related defines ‘control‘ along some important features captured in the adhering to subjects:

1. Control web links an financial reresource to an entity Control of an financial resource

Control links an economic reresource to an entity. Assessing whether control exists helps to recognize the financial resource for which the entity accounts. For example, an entity may control a proportionate share in a property without regulating the civil liberties arising from ownership of the whole home. In such instances, the entity’s asset is the share in the residential or commercial property, which it controls, not the civil liberties emerging from ownership of the whole property, which it does not control.

An ascollection (or a part of it) is an ascollection of some entity. That is, some assets consist of separable bundles of benefits that may be unbundled and also held all at once by 2 or even more entities so that each has an asset. For instance, a building might administer future financial benefits to its owner, to an entity that leases space in it, and to an entity that holds a mortgage on it. Each has an interest in a different aspect of the same building, and each expects to obtain cash flows from having one or even more of the bundles of benefits.

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2. Only one party controls a resource

An entity controls an financial reresource if it has the current ability to direct the use of the economic resource and acquire the economic benefits that may circulation from it.

Control includes the existing capacity to proccasion various other parties from directing the use of the economic resource and from obtaining the economic benefits that might circulation from it. It follows that, if one party controls an financial resource, no other party controls that resource.

An entity should regulate an item’s future financial advantage to be able to consider the item as its asset. To gain an asset’s benefits, an entity generally have to be in a place to deny or manage access to that advantage by others, for example, by permitting accessibility only at a price.

Hence, an ascollection of an entity is the future economic advantage that the entity have the right to control and therefore can, within boundaries collection by the nature of the benefit or the entity’s appropriate to it, usage as it pleases. The entity having an asset is the one that can exchange it, use it to create goods or services, exact a price for others’ use of it, usage it to settle liabilities, host it, or possibly distribute it to owners.


3. The current capability to directly or indirectly straight the use of an economic reresource Control of an financial resource

An entity has the existing capacity to direct the use of an economic reresource if it has the best to deploy that financial resource in its activities, or to permit an additional party to deploy the economic reresource in that various other party’s tasks.

In preparing the financial statements for the year ended 31 December 2xxx, an entity has actually an ascollection only if it has actually the capacity to obtain that asset’s future economic benefits as at that balance sheet moment/date. If an entity anticipates that it might in the future regulate an item’s future economic benefits yet as yet does not have actually that control, it cannot case that item as its asset because the transaction, various other occasion, or circumstance conferring that regulate has actually not yet emerged.

4. Legal form of manage of an financial reresource Control of an economic resource

Control of an economic reresource typically arises from an capability to enpressure legal civil liberties. However before, manage deserve to also aclimb if an entity has actually various other indicates of ensuring that it, and also no other party, has the present capacity to direct the usage of the economic reresource and also attain the benefits that may circulation from it.

For instance, an entity can regulate a best to usage know-exactly how that is not in the public doprimary if the entity has access to the know-exactly how and also the existing capacity to keep the know-just how secret, even if that know-just how is not protected by a registered patent.

First remain conscious, contracts might take a selection of develops and also require not be in composing.

In the lack of legal legal rights, it is even more challenging to demonstrate manage. However before, legal enforcecapacity of a best is not a crucial condition for manage bereason an entity might have the ability to manage the future financial benefits by some various other suggests. In the absence of a clear legal duty, the existence of a current responsibility is a matter for determination from the evidence easily accessible.

In assessing if these other means/accessible proof encertain that it, and also no other party, has the existing capacity to direct the use of the economic resource and also acquire the benefits that might circulation from it:

accessibility to the reresource, or the capability to deny or restrict access to the resource; the indicates to ensure that the reresource is supplied to attain its objectives; and the visibility of an enforceable best to business potential or the ability to geneprice economic benefits developing from a source.

While these signs are not conclusive determinants of whether manage exists, identification and evaluation of them deserve to increate that decision.

Similarly, the existence of legal civil liberties does not guarantee regulate. For example, goods might be offered topic to reservation of title, by which a stipulation is placed in a sale of goods agreement to the result that ownership of the items does not pass to the they are independent of each other; they are knowledgeable; they are able to enter right into a transactivity for the ascollection or liability; and they are(...)
" >buyer until the time of payment.

The substance of these arrangements is that the they are independent of each other; they are knowledgeable; they are able to enter into a transactivity for the asset or liability; and also they are(...)
" >buyer successfully has control over the future economic benefits embopassed away in the yielded products unless tbelow is an incapacity to pay. The they are independent of each other; they are knowledgeable; they are able to enter into a transactivity for the ascollection or liability; and also they are(...)
" >seller, while possessing legal title and therefore the ideal to resume possession in the occasion of the they are independent of each other; they are knowledgeable; they are able to enter right into a transactivity for the ascollection or liability; and also they are(...)
" >buyer’s default, does not regulate the future financial benefits embodied in the items.

5. Continues circulation of benefits to the entity Control of an economic resource

For an entity to manage an financial reresource, the future economic benefits from that reresource must circulation to the entity either straight or instraight rather than to another party. This element of control does not suggest that the entity have the right to ensure that the resource will certainly develop financial benefits in all situations. Instead, it indicates that if the resource produces economic benefits, the entity is the party that will acquire them either directly or instraight.


What provides the reresource worth is the possibility of future inflows. Although an asset derives its worth from its potential to develop future benefits, the thing that the entity controls today is that existing potential, not the future financial benefits.

6. More factors imply regulate Control of an financial resource

Having exposure to substantial variations in the amount of the economic benefits developed by an economic resource might show that the entity controls the reresource. However, it is just one element to think about in the all at once assessment of whether manage exists.

Some economic resources develop cash flows directly, whereas other economic resources are used in combination to produce cash flows. Therefore the way in which an asset or licapability contributes to future cash flows identifies as one aspect in the assessment of whether regulate exists.

Sometimes assessing manage is straightforward, such as when manage over an investee is derived straight and also exclusively from the voting rights granted by equity tools such as shares, and also deserve to be assessed by considering the voting rights from those shareholdings. In other situations, the assessment will be even more complicated and require even more than one element to be taken into consideration, for example when regulate outcomes from one or more contractual arrangements.

7. Agency concept – primary and agent Control of an economic resource

Sometimes one party (a principal) engages an additional party (an agent) to act on behalf of, and for the advantage of, the principal. For instance, a major may interact an agent to ararray sales of goods controlled by the principal. If an agent has custody of an financial reresource controlled by the major, that financial reresource is not an asset of the agent.

Additionally, if the agent has actually an responsibility to carry to a 3rd party an financial resource managed by the principal, that obligation is not a licapacity of the agent, because the financial resource that would be transferred is the principal’s economic reresource, not the agent’s. See likewise Stewardship and company theory.

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Control of an financial resource


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