Conceptual Framework for Financial Reporting

Contribution to future cash flows
As noted in paragraph 1.14, some economic resources produce cash flows
directly; in other cases, economic resources are used in combination to
produce cash flows indirectly. How economic resources are used, and hence
how assets and liabilities produce cash flows, depends in part on the nature of
the business activities conducted by the entity.
When a business activity of an entity involves the use of several economic
resources that produce cash flows indirectly, by being used in combination to
produce and market goods or services to customers, historical cost or current
cost is likely to provide relevant information about that activity. For example,
property, plant and equipment is typically used in combination with an
entity’s other economic resources. Similarly, inventory typically cannot be
sold to a customer, except by making extensive use of the entity’s other
economic resources (for example, in production and marketing activities).
Paragraphs 6.24–6.31 and 6.40–6.42 explain how measuring such assets at
historical cost or current cost can provide relevant information that can be
used to derive margins achieved during the period.
For assets and liabilities that produce cash flows directly, such as assets that
can be sold independently and without a significant economic penalty (for
example, without significant business disruption), the measurement basis that
provides the most relevant information is likely to be a current value that
incorporates current estimates of the amount, timing and uncertainty of the
future cash flows.
When a business activity of an entity involves managing financial assets and
financial liabilities with the objective of collecting contractual cash flows,
amortised cost may provide relevant information that can be used to derive
the margin between the interest earned on the assets and the interest
6.52
6.53
6.54
6.55
6.56
6.57
Conceptual Framework
© IFRS Foundation
A75

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incurred on the liabilities. However, in assessing whether amortised cost will
provide useful information, it is also necessary to consider the characteristics
of the financial asset or financial liability. Amortised cost is unlikely to
provide relevant information about cash flows that depend on factors other
than principal and interest.