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Research on Finance Accounting

Autor:   •  April 17, 2014  •  Essay  •  1,389 Words (6 Pages)  •  1,136 Views

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The famous film actress Nicole Kidman became the face of the Chanel No.5 perfume brand and earned US$12 million for the three-minute advertisement. This event should be recognised and reported in the financial statements of Chanel because it helps to better understand the financial position, performance and cash flows which are useful to users in making economic decisions (AASB Framework par 12). Asset and expense are considered to be relevant to this event. This paper will divide three parts to discuss whether Nicole Kidman should be recongised as an asset or an expense with the rational judgment relevant to the accounting standards. A recommendation will also be given in the conclusion in regards to how this event will be recorded. It argues that Nicole Kidman should not be an asset for Chanel, but can be an expense and should therefore be recognised in the income statement.

In considering Ms Kidman whether is an asset, the three criteria to recoginise the asset should be affirmed. The AASB Framework states that "an 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" (par 40 (a)).

To begin with, the possibility of the future economic benefit is the first criteria to determination of an asset, where this source of the benefit should be distinguished from object or right (Deegan 2012). An object or right might not be disclosed as an asset if it is not possible to bring any economic benefits. The future economic benefits for an asset may be "used singly or in combination with other assets in the production of goods or services to be sold by the entity"(AASB Framework par 55 (a)). In this case, the advertisement performed by Kidman could be viewed as a promotion way that can work with other assets to help Chanel to sell the perfume. Moreover, the determination of "probable" in assets recognition means that an asset must be more likely than less likely to bring the future economic benefits (Deegan 2012). Under this situation, the advertisement Ms Kidman performed is likely to generate expected positive cash inflows for Chanel, satisfying the criteria of determination of an asset, which states an object or right can be disclosed as an asset if it is possible to generate economic benefits inflows (Deegan 2012). Moreover, AASB framework par 54 states that when the goods or services provided by an entity can meet the wants or needs of customers, they will promote the cash inflow. As Ms Kidman has giant commercial appeal, the advertisement has significant business value as well as attracting more customers to pay for Chanel No.5 and hence will bring the future economic benefits to Chanel. Therefore, under the circumstances of future economic benefits, Ms Kidman meets the first criteria of the definition for an asset.

However, the character of Ms Kidman does not satisfy the control criterion

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