A cost ought to be recognised as an asset when:
A) it is probable that it will provide future economic benefits.
B) it may provide future economic benefits.
C) it involves drawings by the owner.
D) the cash has been paid.

Question

Quizplus · Accepted Answer

According to the concept of asset recognition, a cost should be recognized as an asset only when it is probable that it will provide future economic benefits. This means that there is a reasonable expectation that the cost will generate cash flows in the future, either through its use or through its sale. Merely having the potential to provide future economic benefits is not enough, the benefits must be probable. Option B is incorrect because it suggests that any cost that may provide future economic benefits should be recognized as an asset, which is not true. Option C is also incorrect because drawings by the owner are not recognized as assets but rather are treated as reductions in owner's equity. Option D is irrelevant to asset recognition as the payment of cash does not determine whether a cost should be recognized as an asset.

A Cost Ought to Be Recognised as an Asset When