lerina is a restaurant owner in Burwood, VIC. The business prepaid the insurance premium a year in advance. At the time of payment, she thought of recording the prepayment of $14,000 as an asset on the business’ balance sheet. Required: (i) Using the definition of the term “asset” as stated in the Conceptual Framework, explain whether the advance payment of $14,000 can be considered an asset to Valerina. (ii) Explain if the advance payment of $14,000 meets the recognition criteria of an asset. (iii) Given your answers in part (i) and part (ii), state whether or not the prepayment can appear on the the business’ balance sheet.
lerina is a restaurant owner in Burwood, VIC. The business prepaid the insurance premium a year in advance. At the time of payment, she thought of recording the prepayment of $14,000 as an asset on the business’ balance sheet. Required: (i) Using the definition of the term “asset” as stated in the Conceptual Framework, explain whether the advance payment of $14,000 can be considered an asset to Valerina. (ii) Explain if the advance payment of $14,000 meets the recognition criteria of an asset. (iii) Given your answers in part (i) and part (ii), state whether or not the prepayment can appear on the the business’ balance sheet.
Chapter8: Depreciation, Cost Recovery, Amortization, And Depletion
Section: Chapter Questions
Problem 55P
Related questions
Question
Valerina is a restaurant owner in Burwood, VIC. The business prepaid the insurance premium a year in advance. At the time of payment, she thought of recording the prepayment of $14,000 as an asset on the business’
Required:
(i)
Using the definition of the term “asset” as stated in the Conceptual Framework, explain whether the advance payment of $14,000 can be considered an asset to Valerina.
(ii)
Explain if the advance payment of $14,000 meets the recognition criteria of an asset.
(iii)
Given your answers in part (i) and part (ii), state whether or not the prepayment can appear on the the business’ balance sheet.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning