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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

Meera Pharma Ltd. incurred Rs 4,00,000 on a staff training programme during the year. The management believes the training will improve efficiency for several years and wishes to show Rs 4,00,000 as an asset. Applying the Framework, what is the correct treatment?

The Rs 4,00,000 should be charged as an expense. Under the Framework an asset must be controlled by the enterprise, and the company cannot control the future benefits of trained employees nor measure them reliably, so the expenditure does not meet the asset recognition criteria.

  1. ARecognise as an asset since future benefits are probable
  2. BRecognise Rs 1,00,000 as an asset and the rest as expense
  3. CRecognise as an expense since the future economic benefits cannot be reliably controlled or measured as an assetCorrect
  4. DShow as a contingent asset in the notes

Explanation

An asset requires a resource controlled by the entity from past events with expected future benefits. The enterprise cannot control benefits from trained staff, who may leave, and the benefits cannot be reliably measured. Hence the expenditure is expensed. Contingent asset treatment applies to possible assets from uncertain events, not here.

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