Skip to content

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

Rohit Ltd. incurred ₹5,00,000 on staff training during the year. Management believes it will improve productivity but cannot reliably estimate or control the future benefits, and the employees are free to leave. Under the Framework's recognition criteria for an asset, what is the appropriate treatment?

The ₹5,00,000 should be charged to profit and loss as an expense. An asset requires a resource controlled by the enterprise, and the entity does not control the future benefits from trained employees who may leave, so the definition is not met.

  1. ARecognise as an asset, because benefits are expected
  2. BRecognise as an expense in the statement of profit and loss, because the future economic benefits are not controlled by the entityCorrect
  3. CRecognise half as an asset and half as an expense
  4. DRecognise as a reserve in equity

Explanation

An asset is a resource controlled by the enterprise from past events from which future economic benefits are expected. Management cannot control the trained employees' services, so the asset definition fails. The ₹5,00,000 is charged as an expense.

Did you get it right without looking?

One question tells you little. A timed set on Framework for Preparation and Presentation of Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise Framework for Preparation and Presentation of Financial StatementsFree diagnostic mock

More Framework for Preparation and Presentation of Financial Statements questions