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

Sundaram Textiles Ltd. has a fully functional machine whose depreciated cost is ₹8,00,000. The machine's expected future cash flows are uncertain, but the company has a signed binding contract to sell it for ₹9,00,000 next month. Under the Framework, which asset recognition criterion best explains why the machine continues to be recognised as an asset on the balance sheet?

The machine qualifies as an asset because it is a resource controlled by the enterprise, arising from a past purchase, and future economic benefits are expected to flow from it through use or sale. Mode of payment or depreciation method is not part of the asset definition.

  1. AIt is a resource controlled by the enterprise as a result of past events from which future economic benefits are expected to flowCorrect
  2. BIt was purchased by cash payment only
  3. CIt has been legally registered in the name of the directors
  4. DIt will be depreciated using the straight-line method

Explanation

The Framework defines an asset as a resource controlled by the enterprise as a result of past events from which future economic benefits are expected to flow. The machine is controlled by Sundaram and will yield benefits through use or sale. The method of payment, registration in directors' names or the depreciation method does not define an asset.

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