The IASB Conceptual Framework sets out the criteria for the recognition of assets and liabilities in financial statements. For each of the following scenarios explain with reasons whether an asset or liability is created and state how this will impact on the financial statements of each company.
(a) Lakeview plc is a large furniture retailer. The company provides a two year warranty on all furniture sales.
(b) For many years, Carson plc has owned and operated a small coalmine. A report commissioned by the company’s directors confirms that all coal has been extracted from the mine. The area around the mine is heavily polluted and will cost £3m to clean up. Once cleaned up, the mine and surrounding land can be sold for £1m.
(c) Astoria plc has agreed to employ a marketing manager. The manager has just signed a three year contract and will earn £75,000 per annum.
(d) Oxnard plc has just paid £80,000 to acquire computer software that will allow the company to improve its inventory control. The software has a useful life of four years and is expected to reduce inventory storage costs by £40,000 per year.
(e) Stockton plc operates a chain of fitness clubs in the UK and prepares financial statements to 31 July each year. During the year to 31 July 2023, members paid a total of £850,000 relating to subscriptions for the year to 31 July 2024.