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ACCA Strategic Professional · Strategic Business Reporting (International) · The applications, strengths and weaknesses of the accounting framework

Zeta Co acquires a patent for $2m expected to generate future economic benefits, but management argues the asset definition is weak because Zeta cannot control who uses the underlying knowledge. Zeta holds exclusive legal rights preventing others from using the patent. Applying the Framework's definition of an asset, what is the most appropriate conclusion?

An asset exists because Zeta has a present economic resource, the patent right, which it controls through exclusive legal rights as a result of a past purchase. Physical form and certainty of benefits are not required by the Framework definition.

  1. AZeta controls the economic resource through its exclusive legal rights, so the asset definition is metCorrect
  2. BNo asset exists because an asset must be physical
  3. CNo asset exists because future benefits are uncertain, so the probability threshold fails
  4. DAn asset exists only if Zeta has already earned revenue from the patent

Explanation

The 2018 Framework defines an asset as a present economic resource controlled by the entity as a result of past events. An economic resource is a right with potential to produce economic benefits. Exclusive legal rights give control. Certainty of benefits is not required, and physical form is irrelevant.

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