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CA Intermediate · Advanced Accounting · Introduction to Accounting Standards

Under the Framework for Preparation and Presentation of Financial Statements, Sundaram Traders Ltd. has a vehicle used in business that is expected to bring future economic benefits. The company controls it as a result of a past purchase, and its cost of ₹12 lakh can be measured reliably. Which statement is correct?

The vehicle should be recognised as an asset. The Framework defines an asset as a resource controlled by the enterprise from a past event and expected to bring future economic benefits, and its cost is reliably measurable.

  1. AIt should be recognised as an asset because it is a resource controlled as a result of a past event from which future benefits are expectedCorrect
  2. BIt cannot be an asset because ownership of the title is the only test
  3. CIt should be recognised as an expense because it is bought during the year
  4. DIt should be recognised as a liability because cash was paid

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. All elements are present and cost is reliably measurable, so recognition as an asset is appropriate. Legal ownership is not the sole test, so option 2 is wrong.

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