Final answer:
Conditional rights should not be reported separately on the balance sheet as contract assets because they are contingent on the occurrence or non-occurrence of a future event. Contract assets, on the other hand, represent the entity's right to consideration for goods or services that have been transferred to the customer but are not yet due for payment.
Step-by-step explanation:
Conditional rights should not be reported separately on the balance sheet as contract assets. Contract assets are recognized when revenue is recognized, and they represent the entity's right to consideration in exchange for goods or services that have been transferred to the customer but are not yet due for payment.
On the other hand, conditional rights are contingent on the occurrence or non-occurrence of a future event. They do not meet the criteria for recognition as contract assets because they are not yet certain.
For example, if a company has sold goods to a customer, but the customer has the right to return the goods if they are defective, the seller cannot recognize a contract asset until the goods are accepted by the customer. Only when the conditions for acceptance are met can the revenue be recognized and a contract asset be reported on the balance sheet.