Question

ASPE - When do we record a contingent ASSET?

A.When it is remote.
B.When the outcome is probable and the amount can be reliably estimated.
C.Only if it impacts shareholders' equity positively.
D.When legally required.

Answer 1

In ASPE accounting, a contingent asset is recorded when it is probable that economic benefits will flow to the entity and the asset's value can be reliably estimated. It is not based on the positive impact on shareholders' equity, legal requirements, or if the probability is remote.

Step-by-step explanation:

The concept of a contingent asset is relevant in accounting and is typically addressed within Accounting Standards for Private Enterprises (ASPE). A contingent asset is a potential asset that may arise as a result of past events, and its 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.

According to ASPE guidelines, a contingent asset is recorded in the financial statements when the inflow of economic benefits is probable, and the asset's value can be reliably measured. It is not sufficient that the outcome merely impacts shareholders' equity positively or is legally required. The two criteria for recognition of a contingent asset are:

1. The likelihood of an inflow of economic benefits is probable.
2. The asset's value can be measured with reliability.

If these conditions are not met, the contingent asset is generally not recognized in financial statements but may be disclosed in the notes if the inflow of economic benefits is more than remote.