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

Sundaram Pharma Ltd. spent Rs 15 lakh on a training programme for its staff. Management believes it will improve future productivity, but it cannot control the employees' future service or identify the future benefits reliably. According to the Framework, what is the appropriate treatment?

The Rs 15 lakh should be expensed in the statement of profit and loss. An asset requires control over a resource and reliable measurement of future benefits, and neither exists for staff training, so mere expectation of improved productivity does not justify capitalisation.

  1. ACapitalise as an asset because future benefits are expected
  2. BRecognise as a deferred revenue expenditure to be written off over 5 years
  3. CRecognise as an expense in the statement of profit and lossCorrect
  4. DShow as a reserve in equity

Explanation

An item is recognised as an asset only if it is a resource controlled by the entity and future economic benefits are probable and measurable reliably. Here the company lacks control over the benefits and reliable measurement, so the expenditure is charged to profit and loss. Mere expectation of benefit is not enough.

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