Worldcom Case

Topics: Generally Accepted Accounting Principles, Liability, Asset Pages: 3 (708 words) Published: December 16, 2012
a- i) According to SCON 6 article 25, assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. Assets has three characteristics: it embodies a probable future benefit that involves a capacity or in combination with other assets, to contribute directly or indirectly to future net cash inflows, a particular entity can obtain the benefit and control others’ access to it and the transaction or other event giving rise to the entity’s right to or control of the benefit has already occurred. Future economic benefit is the essence of an asset (paragraphs 27–31). An asset has the capacity to serve the entity by being exchanged for something else of value to the entity, by being used to produce something of value to the entity, or by being used to settle its liabilities. Expenses are outflows or other using up of assets or incurrence of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations. Expenses are actual or expected cash outflows that have occurred of will occur as a result of the entity’s central operations. Cost of the goods sold, interest, rent, salaries, depreciation may be given as examples. ii) Costs should be expensed when they have expired or used up and when they have no future economic value. They should be capitalized as assets when costs have not expired and they have future economic value. A simple example for capitalized costs is prepaid insurance. For example if a company pays $10000 for 5 months insurance, it will be recorded as prepaid insurance and deductions will be made monthly as the monthly cost, $2000, expired. c- According to company’s most recent annual report, line costs consist of access charges and transport charges. We cannot understand what portion of the line costs are paid by cash or journalized by accrued expenses....
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