When substantially all risks and rewards of ownership have passed to the purchaser, the purchaser then recognizes an asset. For this recognition, which of the following statements is correct?
A) The purchaser must have both legal title and possession of the goods.
B) Legal title and possession do not always pass to the purchaser at the same time.
C) In practice, recording inventory purchases often takes place when they leave the seller's place of business.
D) The purchaser must have possession of goods before it has legal title.

Question

Quizplus · Accepted Answer

Legal title and possession do not always pass to the purchaser at the same time. For example, in some cases, legal title may pass upon delivery while possession may not occur until later due to shipping arrangements or other factors. Thus, the recognition of an asset is based on when substantially all risks and rewards of ownership have passed, rather than on the specific timing of legal title and possession.

When Substantially All Risks and Rewards of Ownership Have Passed