FAC2601 ASSIGNMENT 1
S TUTORIALS SEMESTER 2 2024
S TUTORIALS
0799599549
, (a)
Asset Recognition Criteria
According to the IFRS Conceptual Framework, an asset is defined as a resource
controlled by an entity as a result of past events, from which future economic benefits
are expected to flow to the entity. The following criteria must be met for an item to be
recognized as an asset:
1. Control: The entity must have control over the resource.
2. Future Economic Benefits: It must be probable that future economic benefits will
flow to the entity.
3. Past Event: The asset must arise from a past transaction or event.
4. Measurable: The cost of the asset must be measurable reliably.
Analysis of Training Costs
1. Control: Liquid Ltd does not have control over the employees' skills or knowledge
gained through training. Employees can leave the company at any time, as indicated
by the employment contracts, which require only a 30-day notice. Therefore, the
company cannot ensure that it will benefit from the training in the long term.
2. Future Economic Benefits: While it is reasonable to expect that trained employees
may perform better and contribute to the company's success, the direct link between
the training and future economic benefits is tenuous. The benefits are not guaranteed,
especially given the voluntary nature of employment. The potential for improved
performance does not meet the threshold of "probable" future economic benefits
required for asset recognition.
3. Past Event: The training costs are indeed incurred as a result of a decision made by
management, which qualifies as a past event.
4. Measurable: The costs of training are quantifiable, as the company has estimated
the training cost to be R848,500 per employee.
S TUTORIALS SEMESTER 2 2024
S TUTORIALS
0799599549
, (a)
Asset Recognition Criteria
According to the IFRS Conceptual Framework, an asset is defined as a resource
controlled by an entity as a result of past events, from which future economic benefits
are expected to flow to the entity. The following criteria must be met for an item to be
recognized as an asset:
1. Control: The entity must have control over the resource.
2. Future Economic Benefits: It must be probable that future economic benefits will
flow to the entity.
3. Past Event: The asset must arise from a past transaction or event.
4. Measurable: The cost of the asset must be measurable reliably.
Analysis of Training Costs
1. Control: Liquid Ltd does not have control over the employees' skills or knowledge
gained through training. Employees can leave the company at any time, as indicated
by the employment contracts, which require only a 30-day notice. Therefore, the
company cannot ensure that it will benefit from the training in the long term.
2. Future Economic Benefits: While it is reasonable to expect that trained employees
may perform better and contribute to the company's success, the direct link between
the training and future economic benefits is tenuous. The benefits are not guaranteed,
especially given the voluntary nature of employment. The potential for improved
performance does not meet the threshold of "probable" future economic benefits
required for asset recognition.
3. Past Event: The training costs are indeed incurred as a result of a decision made by
management, which qualifies as a past event.
4. Measurable: The costs of training are quantifiable, as the company has estimated
the training cost to be R848,500 per employee.
