In which situation would the reporting of an asset NEVER be required for prepaids?

The correct answer is that the reporting of an asset is never required for prepaids when they are accounted for using the purchases method. In this approach, expenditures classified as prepaids are recorded as expenses at the time cash is paid. This method doesn't recognize a prepaid asset on the balance sheet because the idea is that the payment corresponds directly to the expense incurred at that moment, rather than deferring the expense to future periods as an asset.

In contrast, prepaids might be recognized as assets when using the consumption method since this approach implies that the benefits of the prepaid expense will be consumed over a time period, warranting the need to show the asset until it is used. Similarly, inventories are often treated differently based on the method used; the consumption method indicates that inventory is recognized as an asset until consumed, whereas the purchases method results in the immediate expensing of the inventory upon acquisition. This clarifies the circumstances under which each type of prepaid or inventory would be reported.