Question
In: Accounting
Discuss whether the following items would meet the definition of an asset using the IFRS definitions....
Discuss whether the following items would meet the definition of an asset using the IFRS definitions. If so, explain with reference to the appropriate criteria. 1.A franchisee has a licence to operate a Tim Hortons restaurant. 2.The parent company has guaranteed the operating line of credit of its subsidiary, which resulted in the subsidiary obtaining a lower interest rate than it would otherwise receive. Is the guarantee an asset for the subsidiary? 3.FreshWater Inc. bottles and sells the spring water from a natural spring near its property. Is the natural spring an asset of the company? 4.Mountain Ski Resort Ltd. often has to use its snow-making machine to make snow for its hills and trails when there is not enough natural snowfall. Is the snow an asset for Mountain Ski?
Solutions
Expert Solution
Definition of Asset as per IFRS: Asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
By applying above criteria for assets, answers to different scenarios are as follows:
| Sr.No. | Situation | Asset or not | Criteria |
| 1 | A franchisee has a licence to operate a Tim Hortons restaurant | Asset | Having a franchisee name provides you an resource that is controlled by entity from which franchisee holder can expect future economic benefits. In our case Franchisee has a licence to operate a Tim Hortons restraunt, in that case franchisee holder can earn economic benefits in the name of Tim Hortons restruants. It is treated as Intangible asset becuause it can not be touched. |
| 2 | The parent company has guaranteed the operating line of credit of its subsidiary, which resulted in the subsidiary obtaining a lower interest rate than it would otherwise receive. Is the guarantee an asset for the subsidiary? | Not an Asset | Providing gurantee to some one does not create resource to such person and also control is also not transferred in case of gurrantee. In the given case parent company has guranteed the operating line to its subsidiary, subsidiary is not having any control over such gurantee, therefore can be termed as Asset |
| 3 | FreshWater Inc. bottles and sells the spring water from a natural spring near its property. Is the natural spring an asset of the company | Asset | Any resource whether it is natural or artificial if controlled
by entity to have future economic benefits can be termed as assets.
Since Fresh water Inc bottles water from natural spring, we can
assume is having control over that. Control here doesn't restricted
to ownership only. Since Spring water is a resource that is
controlled by Fresh water Inc and from this company is having
future economic benefits, therefore to be termed as Assets. If no amount was paid by FreshWater Inc. for natural spring, the same can be recorded at nominal value |
| 4 | Mountain Ski Resort Ltd. often has to use its snow-making machine to make snow for its hills and trails when there is not enough natural snowfall. Is the snow an asset for Mountain Ski? | Not an Asset | Here Snow is an output generated by the snow-making machine for the hills near Mountain Ski Resort Ltd. It can not be termed as asset as it is not a resource that is controlled by Mountain Ski Resort Ltd |
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