Solution

1. Fails the asset definition as it does not hold any future economic benefits. Thus failed to be
recognized as an asset.

2. A. employee will default on loan

- Present obligation, guarantor contract.
- Past event, the signing of the event is a past event
- Future outflow of economic benefit, payment of the guarantee

This does not however sumup that beachside Ltd will be liable to pay the guarantee, thus the
liability is not recognized.

B. employee will default on loan

- meet the definition of a liability

- Present obligation is there as through the contact

- Past event, the signing of the guarantor contract

- Outflow of economic benefit, payment of the guarantee.

These satisfies the recognition criteria, as the outflow is probable and the amount can be
measured. Hence liability is recognized.

3. Beachside Ltd receives 5 000 shares in Monty Ltd, trading at $6 each, as a gift from a grateful
client.

Asset definition:
- future economic benefits
- controlled by Beachside Ltd
- past event

Asset recognition criteria:

- Future economic benefits are probable
- Shares have value and measurable
Income definition and recognition criteria:
- increase in economic benefits as there will be an increase in asset as Beachside Ltd
now owns the shares
- During period, shares were received during period
- Increase in equity - when assets increase without an increase in liabilities, equity
increases.
- Recognition criteria - increase in economic benefits is probable and amount is
measurable
4. The panoramic view of the coast from Beachside Ltd’s café windows, which you are convinced
attracts customers to the café.
- The view does not meet the definition of an asset as there is no control on the
future economic benefits that are expected to flow from the view
- access to the view by others cannot regulated
- Recognition criteria is irrelevant, as there is no asset to recognize.

5. Court order to repair environmental damage caused to the local river system:

The court order meets the definition of a liability:

- There is a present legal obligation
- The order has been made
- There will be outflow of economic benefits by way of repairs for
damage
Since the repair damage cannot be estimated the recognition criteria fails and the liability
cannot be identified.