Question

Lucas just placed a non-cancellable order for a new office equipment which will have expected useful life of 5 years at $300,000, with delivery in 24 months and payment in full to be made on delivery. Under the conceptual framework, do you think Lucas should recognize any assets or liability at the time it placed the order?

Group of answer choices

Lucas should not recognize any asset and liability at the time it placed the order.

Lucas should recognize both asset and liability at the time it placed the order.

Lucas should only recognize asset at the time it placed the order.

Lucas should only recognize liability at the time it placed the order.

Answer 1

Explanation -

Placing order without paying any amount to the supplier and not getting the delivery of goods does not create any transaction in the part of both the parties to the contract.

Asset is not delivered to the Lucas and amount not paid to the supplier of the assets. Hence in this case Lucas should not recognised any assets and liability at the time it place the order.

Becase placing the order does not create any assets and not liability in the hands of Lucas.