Phil N. Tropic bought a lottery ticket from United Charities for $150. A total of 10,000 tickets have been sold and the grand prize is 1,000,000. There is a fairly active secondary market that’s developed where the tickets are selling for an average of $90.
1.) Should Phil recognize his lottery ticket as an asset and, if so, at what amount.
2.) If the lottery ticket were nontransferable and no secondary market developed, should Phil recognize the lottery ticket as an asset, if so, at what amount.
1.) For issue one Phil can recognize the lottery ticket as an asset at the estimated current value of $90.
2.) For issue two Phil cannot recognize the lottery ticket as an asset.
Authorities on Assets and Personal Financial Statement Presentation:
SFAC 6-26 defines assets as probable future economic beneﬁts obtained or controlled by a particular entity as a result of past transactions or events. SFAC 6-27 further lists three essential characteristics of assets:
(a) It embodies a probable future beneﬁt that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash in-ﬂows.
(b) A particular entity can obtain the beneﬁt and control others’ access to it.
(c) The transaction or other event giving rise to the entity’s right to or control of the beneﬁt has already occurred.
ASC 274-10-35-1 provides guidance on the presentation of personal financial statements specifically stating that personal financial statements shall present assets at their estimated current values at the date of the financial statements. ASC 274-10-20 provides the definition of “Estimated Current Value” for an asset as the amount at...