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Hi John
i have confused something related to the recognition of assests.it is stated that asset is recognised in the fin.statements when the inflow of econ.benefits to entity is PROBABLE. But we know if inflow of economic benefits to entity is probable, it should be contingent asset, and it should not be recognised , it should be diclosed.
if it is so, then why it is stated asset is recognised in the fin.statements when the inflow of econ.benefits to entity is PROBABLE?
i think it should be stated like this: asset should be recognised when the inflow of economic benefits to entity is CERTAIN, not probable. i am not right?I don’t understand why you say “it is stated that asset is recognised in the fin.statements when the inflow of econ.benefits to entity is PROBABLE”
Our free Lecture Notes and lectures do not say that because it is not true!!
If it is certain it is recognised, if it is probably then it is disclosed by note.
That is what our Lecture Notes and lectures say, and they are correct 🙂
in the book of ACCA ( F7- Financial reporting). there is a sentence like this:
!) Item – Asset
2) Recognised in – The statement of financial
position3)When – It is probable that the future economic benefits will flow to the
entity and the asset has a cost or value that can be measured
reliably.and i ask you that it is true?
Ahhh – now that is something different.
I assumed in your first question that you were taking about contingent assets – which is where the possibility of receiving benefit depends on something that cannot be controlled by the company. In which case it is only recognised if it is certain, and applies to such things as income that might result due to a court case that has not yet been heard.
In other more general cases, an asset is recognised when there is expected to be a future benefit. (If it was only if we were absolutely certain that we would get an economic.
benefits, then we would never recognise any assets!!)i am sorry but i did not understand well. can u explain comprehensively? please explain me, why here it is said asset is recognised when It is probable (why not certain?) that the future economic benefits will flow to the entity? if it is so, if it is recognised when the inflow of benefit is probable, then we can say that contingent assets must be recognised. in the finan.statements. because in contingent assets the inflow of ec,benefit is probable too.
No.
Contingent assets exists where there is possible income but it depends on the outcome of some future event that is outside the control of the company.
In that case, the rule is as per IAS 37
That is a completely different situation from conventional assets where the event has already taken place – the company has bought a machine; they have bought inventory; they have sold goods on credit. In normal use of english, probably and reasonable certain mean the same thing – it is only in the case of IAS 37 that the words are defined in terms of percentages.
(I really think you are worrying about it too much for Paper F3 🙂 )
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