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The International Accounting Standards Board’s Conceptual Framework for Financial
Reporting defines recognition as the process of incorporating within the financial
statements an item which meets the definition of an element and satisfies certain criteria.
Which of the following elements should be recognised in the financial statements of an
entity in the manner described?
A As a non-current liability: a provision for possible hurricane damage to property for
an entity located in an area which experiences a high incidence of hurricanes.
B In equity: irredeemable preference shares.
C As a trade receivable: an amount of $10,000 due from a customer which has been
sold (factored) to a finance company with no recourse to the seller.
D In revenue: the whole of the proceeds from the sale of an item of manufactured
plant which has to be maintained by the seller for three years as part of the sale
agreement.QUERY: How are A, C and D incorrect? Please help me as explanation is not given at end of kaplan kit.
A only recognise if probable outflow as a result of a past event. Here is says only possible and there is no past event.
C is derecognised as if there is no recourse then the factor cannot come back to us for any unclaimed amounts.
D we split the income received into that from goods and services
Thanks
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