According to IAS 16, when should an asset be recognised?

• A. Maintenance is performed
• B. It is probable that future economic benefits will flow to the entity and the cost of the asset can be measured reliably
• C. Only when cash is paid
• D. When an asset is used for tax purposes

Answer: (B)

Under IAS 16, a tangible asset is recognized when two conditions are met: it is probable that future economic benefits will flow to the entity, and the asset's cost can be measured reliably. This means the entity must have control over the asset and expect to obtain benefits from it over time, with the amount of those benefits and the asset’s cost able to be measured with reasonable certainty. If these conditions aren’t met, the item isn’t recognized as an asset and is instead expensed or disclosed as appropriate. Paying cash alone or using the asset for tax purposes doesn’t determine recognition; those factors don’t establish the necessary control or probable benefits for accounting purposes. Maintenance or repairs are typically expensed as incurred, since they don’t create the future benefits that justify recognizing the asset. When recognized, the asset is recorded at cost, including the purchase price and directly attributable costs necessary to bring the asset to the location and condition for use.