Page 31 - Finac1 Test 1 slides

THE CONCEPTUAL FRAMEWORK

Suggested solution

• To be recognised as an asset, the item must meet the definition of an asset or
liability as defined by the Conceptual Framework.

• Furthermore, an item can only be recognised as an asset or liability if it satisfies
the following two criteria:

1. It is probable that a future economic benefit associated with the item
will flow to or from the entity.

2. The item has a cost or value that can be measured with reliability (1
mark)

(a) Advertising costs

• It is not possible to predict the benefits which will flow to the entity from the
cost incurred with any degree of certainty. The probability that future economic

benefits will flow to the entity, can therefore not be determined. Consequently,
these costs may not be capitalised. (IAS 38.69(c) furthermore prohibits the
capitalisation of advertising/promotional activities). (2 marks)

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