2.8 Recognition and derecogition of the elements of financial statements

Question 1

What inherent characteristics must be met for resource to be classified as an asset?

Answer 1

1 Present economic resource with potential to produce economic benefits.
2 Its access or use is presently controlled by the entity.

Question 2

Do employees qualify as assets?

Answer 2

No, because the entity is not able to control them (i.e. they could leave)

Question 3

What is derecognition?

Answer 3

The removal of all or part of a recognised asset or liability from an entity’s statement of recognition.

Question 4

When might an asset be derecognised?

Answer 4

When the entity loses control of the asset.

Question 5

When might a liability be derecognised?

Answer 5

When the entity no longer has a present obligation for all or part of the liability.

Question 6

What is meant by “Depreciation”?

Answer 6

The systematic spread of the cost of an asset over its useful life. ie. the period it will be used to generate benefit.