In accordance with AASB framework which of the following transaction(s)is/are consistent with a definition of income?
A)Collection of accounts receivable.
B)Debt forgiveness.
C)Issue of share capital.
D)All of the given answers.
E)Collection of accounts receivable and debt forgiveness.

Question

Quizplus · Accepted Answer

In accordance with the Australian Accounting Standards Board (AASB) framework, income is defined as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.
Let's evaluate the given transactions:
1. Collection of accounts receivable: This transaction represents the collection of cash or cash equivalents that were previously recognized as an asset (accounts receivable). The collection itself does not represent an increase in economic benefits, as it is simply the conversion of one form of asset (accounts receivable) into another (cash). Therefore, it does not meet the definition of income.
2. Debt forgiveness: When a debt is forgiven, it means that the obligation to repay the debt is removed. This results in a decrease in liabilities and consequently an increase in equity (assuming no other changes in equity). Since it is an increase in economic benefits that is not related to contributions from equity participants, debt forgiveness is consistent with the definition of income.
3. Issue of share capital: The issue of share capital is a transaction with equity participants. It involves receiving cash or other assets in exchange for shares, which increases equity. However, this increase in equity is a contribution from equity participants and is not considered income under the AASB framework.
4. All of the given answers: As discussed, not all the given transactions meet the definition of income.
5. Collection of accounts receivable and debt forgiveness: As previously explained, only debt forgiveness is consistent with the definition of income.
Based on the AASB framework, the transaction that is consistent with the definition of income is:
B: Debt forgiveness.

In Accordance with AASB Framework Which of the Following Transaction(s)is/are