Joe, the managing director of Valerina Ltd. had signed an agreement following his resignation on 15 May 2021. The agreement prevents Joe from working in competition with Valerina Ltd for a period of three years. Valerina Ltd paid Joe $250,000 in respect of the agreement. Joe is required to compensate Valerina Ltd $500,000 should he breach the terms. 

Required:

The CEO of Valerina Pty. Ltd. had come to you and enquired if the $250,000 spent on the matter  should be recognized on their  sheet as an asset, a liability or neither.

Use the definition of the terms 'Asset' and 'Liability', as well as the recognition criteria as stated in the Conceptual Framework, to explain whether the business should or should not recognize the $250,000.

Answer rating: 100% (QA)

According to the Conceptual Framework for Financial Reporting an asset is a resource controlled by a... View the full answer