Question

Explain the following two answers in detail: -

A. In an article that appeared in The Australian Financial Review on 26 August 2011 ('Apple could easily flounder without its founder' by Mark Ritson), it was reported:

The news that Steve Jobs has resigned from Apple and will be replaced as CEO by Tim Cook made global headlines yesterday What has followed since has been a frenzied discussion of what the loss of Jobs will mean for new product development timelines, share price issues and corporate culture. Apple's share price fell 5 per cent on the news of the resignation as questions were raised about Apple's prospects without its creative guru at the helm. But the real question for Apple as it enters its post-Jobs period is how well the brand will survive without the founder.

Required: - The fact that the share prices fell following the departure of Steve Jobs is consistent with the view that Jobs was an 'asset' to the company. How do you think this 'asset' would have been disclosed in the financial statements of Apple?

B. What is a contingent asset?

When should a contingent asset be disclosed within the notes to the financial statements?

If something is initially disclosed as a contingent asset, when can it subsequently be recognised as an asset within the financial statements? Briefly explain.

Answer 1

Answer

A. The definition of an asset includes of possessing future service potential, being owned by the enterprise and maintained by the company itself. Human resources definitely possess this characteristic as they can’t render their total service in one accounting year.
Hence we can say that jobs are assets for companies.

The fact are true that the share prices fall following the departure of Steve Jobs is consistent with the view that Jobs are an 'asset' to the company.

No any IFRS(International Financial Reporting Standards) or law requires accounting for human resources. Still some multinational companies apply "Human Resource Accounting". Apple is an international company, it may be possible that Apple have been disclose "Human Resource Accounting" in the financial statements.

B. Meaning of contingent asset:

  A possible asset that arises from past events, and. whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

When should a contingent asset be disclosed in the financial statements.

  An enterprise should not recognise a contingent asset.
Contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the enterprise. An example is a claim that an enterprise is pursuing through legal processes, where the outcome is uncertain.
Contingent assets are not recognised in financial statements since this may result in the recognition of income that may never be realised.

However, when the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate.
A contingent asset is not disclosed in the financial statements. It is usually disclosed in the report of the approving authority (Board of Directors in the case of a company). where an inflow of economic benefits is probable. Contingent assets are assessed continually and if it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognised in the financial statements of the period in which the change occurs.