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Question: A preproduction prototype has been developed for Aquadelight, another toy. Aquadelight is a toy meant to be used in the swimming pool and can also be used as a floatation aide. The amount incurred during the year for the preproduction prototype amounted to $55,000. The junior accountant says that there is a possibility that this amount can be recognised as an asset but has not been clear on how to make this determination. Can you please explain in your SoA how to determine if this amount can be recognised as an asset? Please explain the requirements with examples that would be relevant to Aquadelight. The directors are also confused with the terms definition and recognition of an asset. They want to know, why an item that meets the definition of an asset is not necessarily recognised as an asset?
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