Get premium membership and access questions with answers, video lessons as well as revision papers.

While research and development costs of a project may meet the definition of an asset, the cost may not meet the criteria used in recognizing...

      

While research and development costs of a project may meet the definition of an asset, the cost may not meet the criteria used in recognizing an asset.
Define the term “asset” and explain the criteria used in recognizing an asset.

  

Answers


Mutiso
An asset refers to resources controlled by an entity as a result of past activity which is
expected to benefit the organization for a long time. The asset may be owned by the
business or hired but emphasis is placed on control
Criteria for asset recognition
1. Probable that future benefit will flow to the entity either through continued use or eventual
rule.
2. The value of the asset can be measured reliably at h time of acquisition.
Mutiso answered the question on November 19, 2018 at 18:41


Next: "Qualitative characteristics are the attributes that make information provided in financial statements useful to users." Briefly explain the four main qualitative characteristics of financial statements with reference...
Previous: Give five purposes of control accounts

View More CPA Financial Accounting Questions and Answers | Return to Questions Index


Learn High School English on YouTube

Related Questions


  • "Qualitative characteristics are the attributes that make information provided in financial statements useful to users." Briefly explain the four main qualitative characteristics of financial statements with reference...(Solved)

    "Qualitative characteristics are the attributes that make information provided in financial statements useful to users."
    Briefly explain the four main qualitative characteristics of financial statements with
    reference to shareholders of a company.

    Date posted: November 19, 2018.  Answers (1)

  • Using suitable examples, explain the meaning of the following terms: (i) Accounting standards. (ii) Accounting policies. (iii) Accounting bases.(Solved)

    Using suitable examples, explain the meaning of the following terms:
    (i) Accounting standards.
    (ii) Accounting policies.
    (iii) Accounting bases.

    Date posted: November 19, 2018.  Answers (1)

  • Photomap Ltd. is a leading manufacturer of digital video disks (DVDs). As part of its modernization programme, the company decided to replace its old machinery...(Solved)

    Photomap Ltd. is a leading manufacturer of digital video disks (DVDs). As part of its modernization programme, the company decided to replace its old machinery with a state of the art machine imported from Denmark. The following expenses were incurred for the purpose in the year ended 30 September 2005:
    Shs. "000"
    Catalogue price less cash discount at 10% of the list price 30,000
    Freight and insurance 7,000
    Customs and excise duty 7,300
    Value added tax 7,100
    Installation costs 2,000
    Pre-production testing 700
    Training costs (machine attendant) 50
    Insurance (annual) 700
    Salary paid to machine attendant (annual) 100
    Additional information:
    1. The old machinery disposed of in the year ended 30 September 2005 for Shs. 1,500,000
    had cost the company Shs. 2,000,000 on 1 October 2002. An air conditioner equipment
    purchased for Shs. 545,000 at the same time with the disposed of machinery was
    scrapped during the year since it was no longer required.
    2. The furniture used by the company was acquired on 1 October 2003 at a cost of
    Shs. 800,000.
    3. The value added tax incurred by the company in respect of the machinery
    was recovered from the tax authority against output value added tax.
    4. Depreciation per annum is provided at the following rates:

    Machinery -25% on reducing balance basis
    Equipment - 20% on cost
    Furniture - 15% on cost
    Full year‟s depreciation is provided in the year of acquisition and none in
    the year of disposal.
    Required:
    (i) Ascertain the cost of the new machinery.
    (ii) Disposal accounts.
    (iii) Provision for depreciation accounts.
    (iv) A property, plant and equipment movement schedule for the year ended 30
    September 2005.

    Date posted: November 19, 2018.  Answers (1)

  • Briefly explain the concept "substance over form" with respect to: (i) Motor vehicles acquired on hire purchase. (ii) Leasehold land.(Solved)

    Briefly explain the concept "substance over form" with respect to: (i) Motor vehicles acquired on hire purchase. (ii) Leasehold land.

    Date posted: November 19, 2018.  Answers (1)

  • The following information was extracted from the financial statements of Sunrise Ltd. and Sunset Ltd. in respect of the year ended 30 September 2005:(Solved)

    The following information was extracted from the financial statements of Sunrise Ltd. and Sunset Ltd. in respect of the year ended 30 September 2005:
    sunriseltd11857.png
    Required:
    For each company, compute the following ratios:
    (a)(i) Acid test ratio
    (ii) Inventory turnover
    (iii) Average collection period
    (iv) Return on capital employed
    (v) Debt equity ratio
    (b)(i)On the basis of the ratios computed in (b) above, comment on the overall
    performance of Sunrise Ltd. and Sunset Ltd. and advise which of the two
    companies would provide better investment.
    (ii) Explain the possible shortcomings of relying on your analysis in (b) above.

    Date posted: November 19, 2018.  Answers (1)

  • State four purposes of ratio analysis(Solved)

    State four purposes of ratio analysis.

    Date posted: November 19, 2018.  Answers (1)

  • Omondi and Maina trade as partners in a brick manufacturing firm sharing profits and losses in the ration of 3:2 after charging their annual salaries...(Solved)

    Omondi and Maina trade as partners in a brick manufacturing firm sharing profits and losses in the ration of 3:2 after charging their annual salaries of Shs. 2,500,000 each.
    The trial balance extracted from their records as at 31 October 2005 were as follows:
    omondiandmaina111020.png
    Additional Information:
    1. On 1 March 2005, the partners agreed to admit Ombati into the partnership on the
    following terms:
    - Ombati to pay sh.3,400,000 as his capital contribution.
    - Ombati to be entitled to a salary of Sh.2,000,00 per annum and a share of 10% of the
    profits.
    Omondi and Maina were to continue sharing profits in their old ratios, but guaranteed that
    Ombati‟s share of profits after salaries would not fall below Sh.1,200,000 per year.
    Goodwill was agreed at Sh.2,100,000 but was not to be retained in the books.
    2. The life assurance policy was surrendered on 1 December 2004 for Sh.9,500,000 and the
    proceeds paid directly to Omondi and Maina in their profit sharing ratio. The necessary
    entries in the current accounts were not made to account for this transaction.
    3. The details of the savings bank account were as follows:
    omondiandmaina111020b.png
    4. The actual balance on the bank savings account as at 31 October 2005 amounted to
    Sh.400,000. The difference was due to drawings by Omondi Sh.3,400,000. Maina
    Sh.3,000,000, Ombati Sh.1,200,000 and tax amounting to Sh.4,800,000 paid on behalf of the
    partners (Omondi Sh.2,400,000, Maina Sh.2,000,000 and Ombati Sh.400,000).
    5. Inventory as at 31 October 2005 was valued at Sh.19,000,000.
    Depreciation is to be provided on plant and machinery at 10% per annum and on motor
    vehicles at 20% per annum.
    6. Provision for doubtful debts should be maintained at 5% of the balance in the debtors
    ledger.
    Required:
    a) Trading, profit and loss and appropriation accounts for the year ended 31 October 2005.
    b) Partners' current accounts.
    c) Partners' capital accounts.

    Date posted: November 19, 2018.  Answers (1)

  • Araka Ltd., a company dealing in retail products, extracted from the following trial balance as at 30 September 2005(Solved)

    Araka Ltd., a company dealing in retail products, extracted from the following trial balance as at 30 September 2005:
    arakaltd111003.png
    Additional information:
    1. Provision for doubtful debts should be made at 2% of the debtors ledger balances after
    writing of bad debts amounting to Shs. 1,370,000.
    2. The suspense account was analysed as follows:
    arakaltd111003b.png
    3. The motor vehicle sold during the year had been purchased on 1 February 2002 for
    Sh.6,500,000.
    4. Bank statement as at 30 September 2005 showed bank charges of Sh.533,000. This had not
    been recorded in the cash book.
    5. The debtors ledger control account did not agree with the list of balances in personal
    accounts. You ascertain that some invoices for October 2005 had been posted in the
    personal accounts as at September 2005. The list of balances was overstated by
    Sh.4,300,000.
    6. Estimated corporation tax for the year ended 30 September 2005 was Sh.131,700,000.
    7. The value of inventory as at 30 September 2005 was amounted to Sh.62,047,000.
    8. The directors proposed to pay ordinary dividend of 10%.
    9. The following petty cash expenditure had not been recorded:
    Shs. „000‟
    Motor vehicle expenses 412
    Sundry expenses 91
    Casual workers wages 36
    10. Depreciation is provided at the following
    rates: Buildings- 2% per annum on cost
    Plant and machinery – 20% per annum on reducing balance
    basis. Motor vehicle – 25% per annum on cost
    Full year‟s depreciation is provided in the year of purchase and none in the year of disposal.
    Required:
    a) Trading profit and loss account for the year ended 30 September 2005.
    b) Balance sheet as at 30 September 2005

    Date posted: November 19, 2018.  Answers (1)

  • Explain the accounting treatment that would be applicable in dealing with the following transactions relating to the accounts of Mlachake Ltd. for the year ended 31...(Solved)

    Explain the accounting treatment that would be applicable in dealing with the following
    transactions relating to the accounts of Mlachake Ltd. for the year ended 31 December
    2004:
    (i) A debtor who owed the company Sh.200,000 was declared bankrupt on 1
    February 2005. 25% of the debt had been recovered when the accounts
    were approved by the directors on 15 March 2005.
    (ii) Some items of inventory purchased for Sh.300,000 were damaged in the
    warehouse during the year. These items were repaired at Sh.50,000 and sold
    to a customer on 2 February 2005 at 75% of the normal selling price of
    Sh.400,000
    (iii) On 10 December 2004, the company secured an order worth Sh.1.2 million
    from a foreign based company. The goods were shipped on 10 January
    2005 and included in sales for December 2004.

    Date posted: November 19, 2018.  Answers (1)

  • Citing suitable examples, briefly explain of the following terms: (i) Accounting concepts (ii) Accounting policies (iii) Accounting standards(Solved)

    Citing suitable examples, briefly explain of the following terms:
    (i) Accounting concepts
    (ii) Accounting policies
    (iii) Accounting standards

    Date posted: November 19, 2018.  Answers (1)

  • Identify with reasons, one party who may be interested in each of the following ratios: (i) Current ratio (ii) Net profit margin (iii) Stock turnover(Solved)

    Identify with reasons, one party who may be interested in each of the following ratios:
    (i) Current ratio
    (ii) Net profit margin
    (iii) Stock turnover

    Date posted: November 19, 2018.  Answers (1)

  • Explain the importance of ratio analysis to a business enterprise(Solved)

    Explain the importance of ratio analysis to a business enterprise.

    Date posted: November 19, 2018.  Answers (1)

  • The following balances were extracted from the books of Katee Ltd. for the month of April 2005(Solved)

    The following balances were extracted from the books of Katee Ltd. for the month of April 2005:
    kateeltd11830.png
    (i) Sales ledger control account for the month ended 30 April 2005.
    (ii) Purchases ledger control account for the month ended 30 April 2005.

    Date posted: November 19, 2018.  Answers (1)

  • Explain the advantages of maintaining control accounts(Solved)

    Explain the advantages of maintaining control accounts.

    Date posted: November 19, 2018.  Answers (1)

  • Faida Commercial Bank Ltd. offered 200,000 ordinary shares for sale to the public at a par value of Sh.25 each on 1 April 2004, payable as...(Solved)

    Faida Commercial Bank Ltd. offered 200,000 ordinary shares for sale to the public at a par value
    of Sh.25 each on 1 April 2004, payable as follows:
    - On application, Sh.5 due on 15 April 2004
    - On allotment, Sh.5 due on 30 April 2004
    - On first call, Sh.7.50 due three months after allotment
    - On second and final call, Sh.7.50 due three months after the first call.
    Additional information:
    1. The company received applications for 530,000 shares on the due dates. Applications for
    30,000 shares were rejected and the application money refunded. The rest of the applicants
    were allotted shares on a prorate basis.
    2. One month after allotment, one shareholder of 2,000 shares remitted Sh.25,000 as calls in
    advance. The rest of the calls were received on the due dates except for money due on
    second and final call for Sh.8,000 shares which was paid three months late.
    3. The surplus application monies were treated as calls in advance.
    4. The company‟s articles of association provided for charging of interest on calls in arrears at
    10% per annum.
    Required:
    Ledger accounts to record the above transactions.

    Date posted: November 19, 2018.  Answers (1)

  • The following draft accounts have been prepared by the treasurer of Wasomaji Members Club(Solved)

    The following draft accounts have been prepared by the treasurer of Wasomaji Members Club:
    wasomajimembersclub11743.png
    wasomajimembersclub11743b.png
    Additional information:
    1. The treasurer had little accounting knowledge and some figures appearing in the draft
    accounts were incorrect.
    2. The club‟s policy on outstanding subscriptions was to write off amounts
    outstanding for a period exceeding five years. As at 1 January 2004, subscriptions
    outstanding from members were Sh.3,120,000
    3. The club‟s premises were purchased on 1 October 2004 for Sh.4 million.
    This amount was posted to the use of premises account in the draft accounts.
    4. The treasury bond was purchased for Sh.9.3 million on 1 January 2000 by utilizing
    donations earmarked for a member‟s welfare fund. Up to 31 December
    2003, the income received from this investment had been distributed to members. The
    income for the year ended 31 December 2004 was included under sundry income as
    resolved at the annual general meeting held on 10 April 2004.
    5. The club runs a bar for the benefit of members. This bar sells stock at a mark-up of
    30%. The income from bar sales amounting to Sh.9,927,000 was included under sundry
    income. There was no opening stock as at 1 January 2004 and the club owed suppliers
    Sh.1,625,000 as at 1 January 2004. Bar closing stock as at 31 December 2004 was not
    ascertained.
    6. The balance of the fixed deposit account as at 1 January 2004 amounted to Sh.1,500,000
    reflected in the balance sheet as at 31 December 2004. No account was taken of interest
    amounting to Sh.100,000 which had been credited to the fixed deposit during the year.
    7. As at 1 January 2004, cash in hand was Sh.100,000 and the bank current account was
    overdrawn by Sh.893,000.
    8. The reference books purchased during the year are to be capitalized as part of the
    library. Library and furniture are to be revalued to Sh.5,000,000
    9. Depreciation is to be provided based on the cost of the assets as follows:
    Club premises - 2% per annum
    Minibus - 20% per annum
    Required:
    (a) Income and expenditure account for the year ended 31 December 2004.
    (b) Balance sheet as at 31 December 2004.

    Date posted: November 19, 2018.  Answers (1)

  • Chacha and Mushi are in partnership sharing profits and losses equally. They manufacture shoes whose brand name is "DAWO". Their trial balance as at 31...(Solved)

    Chacha and Mushi are in partnership sharing profits and losses equally. They manufacture shoes whose brand name is "DAWO". Their trial balance as at 31 December 2004 was as follows:
    chachamushi11731.png
    Additional information:
    1. Stock at 31 December 2004 was valued as follows:
    Sh. "000"
    Raw materials 2,000
    Work in progress 4,200
    Finished goods 1,000
    2. Insurance prepaid (31 December 2004)
    Sh. "000"
    Factory 200
    Office 35

    Rates owing (31 December 2004)
    Sh."000"
    Factory 500
    Office 25
    3. Depreciation is provided at the following rates:
    Factory buildings – 2% per annum on cost
    Delivery van – 25% per annum on cost
    Plant and machinery – 20% per annum on cost
    4. Provision for doubtful debts is to be maintained at 5% of the debtor‟s balance
    at the end of the year.
    5. Manufactured goods are transferred to the warehouse at cost plus 25% of factory profit
    6. The partnership agreement has the following provisions:
    (i) A commission of 10% to Mushi based on factory profit while Chacha is
    entitled to a commission of 10% based on net profit from trading.
    (ii) Partners are allowed interest on their fixed capitals at a rate of 10% per
    annum.
    (iii) Chacha had guaranteed Mushi a total income from the partnership of
    not less than Sh.15,000,000 per annum.
    Required:
    (a) Manufacturing, trading and profit and loss and appropriation accounts for the year ended 31
    December 2004.
    (b) Balance sheet as at 31 December 2004.

    Date posted: November 19, 2018.  Answers (1)

  • The summarized financial statements of Baraka Enterprises Ltd. are as follows(Solved)

    The summarized financial statements of Baraka Enterprises Ltd. are as follows:
    barakaltd11723.png
    barakaltd11723b.png
    Required:
    (i) For each year, calculate the following:
    (a) Gross profit margin
    (b) Inventory turnover
    (c) Return on equity
    (d) Return on assets
    (e) Acid test ratio
    (f) Current ratio
    (g) Financial leverage
    (ii)Comment on the liquidity position of the company giving possible reasons for the change.

    Date posted: November 19, 2018.  Answers (1)

  • Explain the meaning of prudence concept showing how this is applied in stock valuation(Solved)

    Explain the meaning of prudence concept showing how this is applied in stock valuation.

    Date posted: November 19, 2018.  Answers (1)

  • The trial balance of Plastics Ltd as at 31 October 2004 is as follows(Solved)

    The trial balance of Plastics Ltd as at 31 October 2004 is as follows:
    plasticsltd11717.png
    Additional information:
    1. A building whose net book value is currently Sh.5 million is to be revalued to Sh.9 million
    2. A final ordinary dividend of Sh.2 million is proposed.
    3. The balance on the corporation tax for the current year is estimated at Sh.3 million.
    Required:
    (i) Income statement for the year ended 31 October 2004.
    (ii) Balance sheet as at 31 October 2004.

    Date posted: November 19, 2018.  Answers (1)