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CMA Intermediate · Corporate Accounting and Auditing · Conceptual Framework

Sundaram Traders defers Rs 2,00,000 of staff training costs as an asset, arguing that this matches the cost with the benefits expected in future years. The item does not meet the definition of an asset. According to the Conceptual Framework, the deferral is:

The deferral is not allowed. The Conceptual Framework does not permit recognising in the balance sheet items that fail the definition of an asset, a liability or equity, and matching of costs with income is not an objective that could override this.

  1. AAllowed, because matching justifies it
  2. BAllowed, if disclosed in the notes
  3. CNot allowed, because the framework does not permit recognising in the balance sheet items that fail the definition of an asset, liability or equityCorrect
  4. DAllowed, but only for amounts below Rs 5,00,000

Explanation

The framework does not allow balance sheet recognition of items that are not an asset, liability or equity, and matching is not an objective. So matching cannot justify the deferral. Disclosure and size thresholds are not provided in the text.

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