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ACCA Applied Knowledge · Financial Accounting · Key principles and concepts of accounting

On 30 June, Marlow Co signed a contract to buy machinery for $80,000, with delivery due on 15 August. Marlow Co has paid nothing and no goods have been received at 30 June, its reporting date. Which statement is correct at 30 June?

Marlow Co should recognise nothing at 30 June. The contract is wholly unperformed, so no past event has given control of the machinery or created a present obligation to pay. At most the commitment is disclosed.

  1. AMarlow Co should recognise a liability of $80,000 and an asset of $80,000
  2. BMarlow Co should recognise a liability of $80,000 only
  3. CMarlow Co should recognise an expense of $80,000
  4. DMarlow Co should not recognise an asset or liability because the contract is unperformed by both partiesCorrect

Explanation

Neither party has performed: no machinery has been delivered and no cash paid. There is no past event giving control of an economic resource, so no asset or liability arises. The contract may be disclosed as a commitment. Recognising both would anticipate delivery.

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