Question

1. Describe the criterial for recognition of elements in the financial statements

Answer 1

Recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the following criteria for recognition:

It is probable that any future economic benefit associated with the item will flow to or from the enterprise and

The item's cost or value can be measured with reliability.

Based on these general criteria

An asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the enterprise and the asset has a cost or value that can be measured reliably.

A liability is recognised in te balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably.

Income is recognised in the income statement when an increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably.This means,in effect that recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities

Expenses are recognised when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably.This means in effect that recognition of expenses occurs simultaneously with the rrecognition of an increase in liabilities or a decrease in assets