IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Chapter 2 IIASB Framework

The Framework notes that the most common measurement basis in financial statements is histori– ca l cost, but that other measurement bases are also used, such as current cost, realizable or settlement value, and present value. 6. CONCEPTS OF CAPITAL AND CAPITAL MAINTENANCE 6.1 The Framework distinguishes betwee n a financial concept of capital and a physical concept of capital. Most entities use a financia l concept of capital, under which capital is defined in mone– tary terms as the net assets or equity of the entity. Under a physical concept of capital, capital is instead defined in terms of physical productive capaci ty of the entity. 6.2 Under the financial capital maintenance concept, a profit is earned if the financial amount of the net asse ts at the end of the period exceeds the financial amount of net asse ts at the beginn ing of the period, after excludin g any distributi ons to, and contributions from, owners durin g the period. Under the physical capital maintenance concept, a profit is instead earne d if the physical productive capacity (or operating capab ility) of the entity (or the resources or funds needed to achieve that capacity) at the end of the period exceeds the physical productive capac ity at the beginning of the period, after excluding any distributions to, and contributions from, owners durin g the period. Recent Deve lopments In October 2004, IASB added a project to its agenda to develop a new framework . Thi s proj– ect is conducted jointly with the US Financial Accounting Standards Board (FASB). The ob– jec tive is to develop a common conceptual framework that brings together and improves upon the exis ting frameworks of IASB and FASB. In July 2006, IASB and FASB published a con– sultative document that contains drafts of the first two chapters of an enhanced framework. These chapters define the objec tive of financial reporting and the qualitative characteristics of decision-usefu l financial information. At the time of writing, IASB and FASB were continu– ing their discussions on these issues and other aspec ts of the new framework . In addition , they have conducted roundtable discussions with constituent groups on measurement issues. IASB and FASB plan to publish portions of the new framework as they are finalized and withd raw the equivalent sections in the current text. A completed framework is not expected before 2010. To stay current in this area, readers should monitor deve lopment on this project.