Skip to content

ACCA Applied Knowledge · Financial Accounting · The main elements of financial statements

Marlow Co leases a delivery van under a contract giving it the right to control use of the van for four years. It has not paid the whole rental and the van remains legally owned by the lessor. Which analysis best fits the Conceptual Framework definitions?

Marlow has an asset because it controls the right to use the van as a result of the lease contract. Legal ownership, full payment or an intention to buy are not required by the definition; control of the economic resource is what counts.

  1. AMarlow has an asset because it controls the right to use the van, even though legal title is with the lessorCorrect
  2. BMarlow has no asset because it does not hold legal title to the van
  3. CMarlow has an asset only when all rentals have been paid in full
  4. DMarlow has an asset only if the van is expected to be bought at the end of the lease

Explanation

An asset is a resource controlled as a result of past events, and the right to use the van is an economic resource Marlow controls. Legal title is not necessary, and full payment or a purchase intention is not part of the definition. Marlow also has a corresponding lease liability for unpaid rentals.

Did you get it right without looking?

One question tells you little. A timed set on The main elements of financial statements shows your real accuracy, how long you take and where you lose marks.

Practise The main elements of financial statementsFree diagnostic mock

More The main elements of financial statements questions