Question 1) (5 marks) Large Mart has recently purchased and installed a filter system through which all exhaust fumes from its Personal Computer (PC) factory are passed before being released into the atmosphere. The filter system was purchased and installed because the Australian Environmental Protection Agency (EPA) threatened to close the factory unless all exhausted fumes were filtered.

The Chief Executive Officer (CEO) has asked the CFO whether or not the filter system represents and asset of the company. The CFO is not sure if the filter system is an asset because he reviewed the Australian Conceptual Framework document and is concerned that the filter system may not meet the future economic benefit requirement that is part of the asset definition. The main reason for the CFOs concerns is that the filter system is not actually used in the production process.

a) Provide a detailed discussion of whether or not the filter system that was purchased and installed in the Large Mart factory meets the future economic benefit requirement that is included in the asset definition criteria, AND provide a detailed description of the future economic benefits (if any exist) that the filter system is producing.

b) Determine whether or not the filter system can be recognised as an asset in the books of Large Mart. When making this decision provide a detailed discussion that outlines how each of the asset definition criteria is (or is not) fulfilled.