A present economic resource controlled by the entity and the entity has the right to potentially produce future benefit which is expected to be turned into cash, sold or consumed within 12 months is known as a

Question

BlackTom AI · Accepted Answer

An asset expected to be converted to cash, sold or consumed within 12 months is classified as a current asset under standard accounting definitions.

1) Relevant knowledge points and concepts
- Asset: a present economic resource controlled by an entity from which future economic benefits are expected (IFRS Conceptual Framework).
- Current vs non-current classification: items expected to be realized, consumed or settled within the entity’s normal operating cycle or within 12 months after the reporting date are current; those extending beyond 12 months are non‑current.
- Liability vs asset: liabilities are present obligations to transfer economic benefits; assets are resources expected to provide economic benefits.

2) Step‑by‑step reasoning
- The stem states: a present economic resource controlled by the entity (this meets the definition of an asset).
- It further specifies the resource is expected to be turned into cash, sold or consumed within 12 months. That timing criterion is the defining feature for “current” classification.
- Therefore combine both facts: it’s an asset (present economic resource with future benefit) and it meets the within‑12‑months timing test → current asset.

3) Calculations
- No numerical calculation is required. The classification is based on the qualitative timing criterion (≤12 months).

4) Why the correct answer is correct
- “Current asset” precisely matches both parts of the description: (a) present economic resource giving future benefits, and (b) expected realization/consumption within 12 months. This is the textbook definition used in financial reporting.

5) Why the other options are incorrect
- a. Current liability: a liability is an obligation to transfer benefits, not a resource that produces benefits, so it does not match.
- b. Non‑current asset: non‑current assets are expected to provide benefits beyond 12 months, which contradicts the “within 12 months” condition.
- c. Non‑current liability: similarly, this is an obligation due beyond 12 months and is not an asset.

Conclusion: The correct classification is d. current asset. This matches the provided answer.

A present economic resource controlled by the entity and the entity has the right to potentially produce future benefit which is expected to be turned into cash, sold or consumed within 12 months is known as aSingle choice

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