Question

In each of the situations below, state whether the financial asset and financial liability may be offset in the books of Sunset Tours Ltd A as at 30 June 2019 and explain why.

(a) Sunset Tours Ltd owes Helicopter Ltd $500 000, due on 30 June 2020. Joyflights Ltd owes Sunset Tours Ltd $300 000, due on 30 June 2020.

Answer 1

Financial asset and financila liability can be set off only if an entity has a

1 legally enforeceable right to set off recognised amount and

2 And entity has intention of settling the asset and laibility on net basis

In the given situation Financial asset here is accounts receivable (the amount owed by joyflights ltd of $500,000) and financial liability is (amount owed to helicopter ltd of $500,000).

Here the both the parties are different from amount is receivable and payable, so it is not legally enforceable to set off recognized amount.

Hence in the given situation financial asset and financial liability can not be set off.