When Should You Use Guidance from the Concepts Statements? Before turning to the Concepts Statements for guidance, always first look to the Codification to

see whether transaction, or item-specific guidance is available. That said, the Concepts Statements are, in some circumstances, the only place to find cer- tain guidance. Here are some common circumstances in which the Concepts Statements may be utilized.

To classify elements of financial statements. The broad meanings of the terms asset, liability,

equity, expenses, gains, and losses are not defined in the Codification. For these definitions,

you will need to consult CON 6. This guidance contains definitions and detailed discussion of

characteristics that are essential to meeting these definitions.

CON 6 is commonly used in determining whether a cost should be classified as

an asset or as an expense.

To understand the computation and objectives of present value. Practitioners may consult

CON 7 for guidance on present value measurements, but are encouraged to do so only

after considering present value guidance within ASC 820 (Fair Value Measurement), as

discussed further in Chapter 8.

CON 7 can be used to understand how present value should be computed.

To determine whether an event or item should receive financial statement recognition. In the event that the Codification does not address a particular class of transactions or items

CON 5 establishes four fundamental recognition criteria; however, it is not use frequently in practice. Lets take a moment now to practice performing research using the Concepts Statements. The following questions focus on applying the definitions of financial statement elements

Scenario 1: A company purchased 50 hole punchers for its office staff. Each hole puncher cost $5 and should be in service for 5 years or more. Should the cost of these hole punchers be recorded as an asset or as an expense? Support your answer using references to paragraphs from CON 6.

1. AnalysisShould the hole punchers be recorded as an asset or expense? Why?

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In Scenario 1, note that while you could support your position using only the definition of an asset (par. 25), your answer is stronger if you support your conclusion with excerpts from detailed Appendix B implementation guidance, as well. For judgmental issues, reference to this detailed interpretive guidance can be essential.

Scenario 2: Using the definition and characteristics of an asset above, explain why advertising costs are generally recorded as expenses, rather than as assets.

2. AnalysisWhy are advertising costs generally recorded as expenses, rather than as assets?

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