Using the criteria outlined in the summary in Figure 2.2, explain why the following items are assets that entities recognize on the statement of financial position:

(a) Motor vehicles purchased by an entity.

(b) Inventory received from suppliers.

(c) Cash and cash equivalents.

Using the criteria outlined in the summary in Figure 2.2, explain why the following items are not assets and why they are not recognized on entities’ statements of financial position:

(a) Redundant plant and machinery that has been replaced by faster, more technologically advanced machinery. This redundant plant and machinery is no longer used in the business or industry and has no resale or scrap value.

(b) A trade receivable from a customer who is bankrupt and from whom no payment is expected.

(c) A highly skilled workforce.

Figure 2.2.

Transcribed Image Text:

Is there a present economic resource? ↓ Yes ↓ Does the entity control the resource? No-> ↓ Yes ↓ Is there a past event giving rise to control of that resource by the entity? ↓ Yes Does the economic resource have the potential to produce economic benefits? ↓ Yes ↓ Can the resource be measured in such a way that a faithful representation is achieved? ↓ Yes ↓ No Recognize an asset on the statement of financial position No-> No → No->> No asset is recognized No asset is recognized No asset is recognized No asset is recognized No asset is recognized