Question

Please write three key criteria in defining the expense (based on our discussion in class).

Answer 1

Criteria for definition of expenses are as follows :

1. There is decrease in the Asset or increase in the liability.
2. It should result in overall decrease in the equity.
3. Such decrease shall not be by distributions made to equity shareholders.

The criteria for recognising expenses are as follows:

1. There is consumption of or loss of future economic benefit resulting in decrease in assets or increase in liabilities or both.
2. Such loss of future economic benefit can be measured reliably and accurately.