An obligation can meet the definition of a liability even if the probability of a transfer of an economic resource is low. State any four examples that represents obligation to transfer an economic resource. (03)
Question
An obligation can meet the definition of a liability even if the probability of a transfer of an economic resource is low. State any four examples that represents obligation to transfer an economic resource. (03)
Solution
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Loan Repayments: If a company or individual has taken out a loan, they have an obligation to repay that loan to the lender, regardless of their current financial situation. This is a liability as it represents a future outflow of economic resources (money) from the borrower to the lender.
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Accounts Payable: These are amounts owed by a company to its suppliers for goods or services received but not yet paid for. Even if the company is experiencing cash flow problems, it still has the obligation to transfer economic resources to its suppliers.
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Employee Salaries: A company has an obligation to pay its employees for their work. This represents a future outflow of economic resources from the company to its employees.
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Taxes Payable: Companies have an obligation to pay taxes to the government. This is a liability as it represents a future outflow of economic resources from the company to the government.
In all these examples, the obligation to transfer an economic resource exists, even if the probability of the transfer is low due to financial difficulties or other reasons.
Similar Questions
1. Which of the following is not an aspect of the definition of a liability under the revised Conceptual Framework? a. Probable outflow of economic benefits d. Present obligation as a result of past events b. Transfer of an economic resource c. Obligation
a. Probable outflow of economic benefits d. Present obligation as a result of past events b. Transfer of an economic resource c. Obligation
Which of the following is incorrect about liabilities according to the conceptual framework? "For an obligation to exist, it has to be a legal obligation." "An obligation may arise based on notions of equity and fairness, referred to as equitable obligation. " "An obligation may arise based on customary practices, published policies or particular statements, referred to as constructive obligation, if the entity has no practical ability to avoid complying." "For the liability definition to be met, there needs to be a present obligation."
"A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits" is the definition of:an expensea liabilityequityan asset
Which of the following statements about liabilities is incorrect? Question 2 Answer A liability is an obligation that currently exists A liability involves a transfer of an economic resource A liability is a future obligation A liability arises as a result of past events
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