Question

Consider the following situations. In each case, is there an asset or
liability within the definitions given by the Conceptual Framework?
Explain your answer. Elaborate your view with reference to the
HKICPA Conceptual Framework of Financial Reporting (2018).

a PPA Limited has purchased a copyright for $350,000. The copyright
gives the company exclusive use of radio-frequency identification
(RFID) technology for the production of a video game which will
bring additional revenue around $300,000 each year for the next five
years.

b DDA Limited paid TYT Limited $10,000 to set up a pet grooming
shop, provided that DDA Limited gets priority in the pet grooming
treatment services offered. Please answer the questions from the
perspective of DDA Limited.

Answer 1

As per the Conceptual Framework

An asset is - a resource on which the entity has "right" and produces 'economic benefit" and "control" is with the entity. Further the economic benefit shall be reliable and measured with certainity.

So keeping this in mind let us see the cases in question -

A) Copy right - This gives "right" to the entity to produce the product

Copy right produced product is giving economic benefits

the control of the copy right is with the entity

Since this satisfied all the criteria this can be recognised as an "Asset"

B) Payment to get priorit services -

In this case the future economic benefit is not reliable. The measurement of such benefit is not possible. If the benefit is not reliable and not measured with certainity it cannot qualify as an asset.

Hence this cannot be an asset. However if the entity at a later point can establish that they have certain measurement methodology for the benefits then they may disclose it as an asset at that time.