An asset must be ________ by the business to be shown as an asset in its balance sheet.
A. Possessed
B. Owned
C. Controlled
D. Used
Answer: Option B
Solution(By Examveda Team)
In accounting, for an item to be recognized as an asset on a business's balance sheet, it must beowned by the business. Ownership implies that the business has legal control and rights over the asset, allowing it to use, sell, or otherwise benefit from the asset's economic value.Options A, C, and D are not sufficient conditions for an item to be classified as an asset:
Option A:
Possessed implies physical control but does not necessarily guarantee legal ownership. Possession alone does not confer the rights associated with ownership.Option C:
Controlled may indicate influence or management over an asset, but it does not necessarily imply legal ownership. Control alone is not sufficient for an item to be recognized as an asset on the balance sheet.Option D:
Used suggests the utilization of an asset, but again, it does not guarantee legal ownership. Using an asset does not automatically confer ownership rights.Therefore, Option B:
Owned is the correct choice because ownership is a fundamental requirement for an item to be classified as an asset in accounting. This Question Belongs to Commerce >> Accounting
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In order for an asset to be recognized in the financial statements, it must the following definition laid down in the IASB Framework:
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 (IASB Framework).
I think not control here owned suitable
Possessed is the right answer
I think possessed not controlled and owned because possession is important in business.
In order for an asset to be recognized in the financial statements, it must the following definition laid down in the IASB Framework:
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 (IASB Framework).
It is worth noting that the framework defines asset in terms of control rather than ownership. While control is generally evidenced through ownership, this may not always be the case. Therefore, an asset may be recognized in the financial statement of the entity even if ownership of the asset belongs to someone else. For instance, if a machine is leased to a company for the entire duration of its useful life, the machine may be recognized in its Statement of Financial Position (Balance Sheet) since the entity has control over the economic benefits that would be derived from the use of the asset. This illustrates the use of Substance Over Form whereby the economic substance of the transaction takes precedence over the legal aspects of a transaction in order to present a true and fair view.
Explanation
Since, by definition, an asset must be controlled by the entity in order for it to be recognized in the financial statements, certain ‘Assets’ would not qualify for recognition. Consider a highly dedicated workforce. Generally speaking, a hardworking and motivated workforce is the most valuable asset of any successful company. But does an entity has control over its workers? The answer is no, because an employee may quit an organization any day and seek employment in a rival firm much to the detriment of the company. Therefore, such ‘Assets’ may not be recognized in the financial statements of a company.
I think there is a mistake in this question. The right answer should b "possessed". However, all the three answers are somewhat similar in meaning, therefore, the question is a bit confusing.
Here is a mistake by examveda, the right answer is possession
I don’t fully agree with this answer, an asset has to be in possession of a business either owned or on lease before it can be controlled
Assets must be owned becoz if the right of property is absent then it's not treated as assets
Why not the assets should be owned by the business
I do not agree with this answer. An asset my be owned by a third party and leased to the company. In this case the asset is under the control of the company.
The company can only show lease rentals as its expenses, not the asset as its own asset
An asset must be _Possessed_______ by the business to be shown as an asset in its balance sheet.
Asset should be owned.
What if asset is not owned ? Then why will it be in the BS