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Why can a secret formula be recognised as an asset?

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Why can a secret formula be recognised as an asset?

  • This topic has 3 replies, 2 voices, and was last updated 4 days ago by P2-D2.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • September 9, 2023 at 4:40 pm #691828
    namdeloitte2014
    Participant
    • Topics: 3
    • Replies: 1
    • ☆

    Hi Sir,
    I have a question:
    Recognition is the process of including within the financial statements items which meet the
    definition of an element according to the IASB’s Conceptual Framework for Financial
    Reporting.
    Which of the following items should be recognised as an asset in the statement of
    financial position of a company?
    (i) A secret formula for the manufacture of a best-selling sauce. The recipe is kept
    secure at the company premises and known only by the company directors
    (ii) A highly lucrative contract signed during the year which is due to commence shortly
    after the year end
    (iii) Items that are to be sold via a third party agent which the company can no longer
    control and cannot be returned to the company of they are unsold
    (iv) A receivable from a customer which has been sold (factored) to a finance company.
    The finance company has full recourse to the company for any losses
    A. (i) and (iii)
    B. (iii) and (iv)
    C. (i) and (iv)
    D. (ii), (iii) and (iv)
    The answer is C

    I am considering why the item (i) is recognised as an asset. The secret formula is unlikely to measure realiably, so it may not be an asset
    Please explain why the secret formula is an asset
    Thank you very much!

    September 13, 2023 at 2:58 pm #691994
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6699
    • ☆☆☆☆☆

    Hi,

    I agree with you. I’m not sure how a secret recipe can be reliably measured, so would not be included within the accounts.

    Does it say anything additional in the answer other than giving the correct option?

    Thanks

    September 19, 2023 at 3:47 am #692233
    namdeloitte2014
    Participant
    • Topics: 3
    • Replies: 1
    • ☆

    The answer explaines why item (iv) is recorded as an asset, but not for item (i)
    Thank you for your reply!

    September 24, 2023 at 7:43 pm #692489
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6699
    • ☆☆☆☆☆

    Very strange. The only way in which it could be capitalised as an intangible is if it was purchased, and that does not seem to be the case in point here.

  • Author
    Posts
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