Framework Problem #1
Following is the definition of an asset from three sources:
1. FASB Concept Statement No. 6, paragraph 25 –“Assets are probable future economic benefits obtained orcontrolled by a particular entity as a result of past transactionsor events.”
2. IASB Framework, paragraph 49(a) – “An asset is aresource controlled by the entity as a result of past events andfrom which future economic benefits are expected to flow to theentity.”
3. The Working Group’s working definition as ofOctober 2008 (the Working Group is the group working on the JointProject of the IASB and FASB on Conceptual Framework (Phase B –Elements and Recognition)) – “An asset of an entity is a presenteconomic resource to which the entity has a right or other accessthat others do not have.”
Accompanying text will amplify the asset definition bydescribing present, economic resource, and right or other accessthat others do not have:· Present means that on the date of the financialstatements both the economic resource exists and the entity has theright or other access that others do not have.· An economic resource is something that is scarce andcapable of producing cash inflows or reducing cash outflows,directly or indirectly, alone or together with other economicresources. Economic resources that arise from contracts and otherbinding arrangements are unconditional promises and other abilitiesto require provision of economic resources, including through riskprotection.· A right or other access that others do not haveenables the entity to use the economic resource and its use byothers can be precluded or limited. A right or other access thatothers do not have is enforceable by legal or equivalent means.
Required: Read each definition and compare andcontrast the FASB and IASB versions and then compare to the WorkingGroup’s definition.
Review the following items and evaluate if theyshould be recorded as an asset under the Working Group’sdefinition. Focus on “… present economic resource” and “… right orother access” in your analysis: · Accounts receivable from a past sale· Uncollectible accounts receivable· Accounts receivable – arising from future sales by anestablished business· Raw materials for inventory· Proven oil reserves· Goodwill· Leased asset· Research costs incurred in the development of a newproduct· Website· Three-year employment contract with CEO· Futures contract to purchase raw materials in twoyears at today’s price
” … present economicobligation”
” … entity isobligor”
Asset
Items
Yes or No
Yes or No
Yes or No
Accounts receivable from a past sale
Uncollectible accounts receivable
Accounts receivable – arising from future sales by anestablished business
Raw materials for inventory
Proven oil reserves
Goodwill
Leased asset
Research costs incurred in the development of a newproduct
Website
Three-year employment contract with CEO
Futures contract to purchase raw materials in two years attoday’s price
Asked Jan. 07, 2017
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