Which of the following statements relating to the accounting treatment of the identified item is CORRECT?O 1. Dividends become a legal liability of the company when they are declared and as such, they are recorded in thecurrent liabilities section of the Balance Sheet and as an expense on the Income StatementO 2.A contingent liability should only be disclosed in the Notes to the Financial Statements because it meets theaccounting definition of a liabilityO 3. Inventories are valued at the lower of cost and net realisable value on the Balance Sheet while in contrast, cash isvalued at fair valueO 4. The revenue realisation principle states that revenue can only be recognised when there has been an arms-lengthtransaction

Option 2 is wrong because a contingent liability should be disclosed in the Notes to the Financial…

Answered: e accounting treatment c

Business

Accounting

e accounting treatment c

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter11: Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycle

Section: Chapter Questions

Problem 4RQSC

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Question

Which of the following statements relating to the accounting treatment of the identified item is CORRECT?
O 1. Dividends become a legal liability of the company when they are declared and as such, they are recorded in the
current liabilities section of the Balance Sheet and as an expense on the Income Statement
O 2.A contingent liability should only be disclosed in the Notes to the Financial Statements because it meets the
accounting definition of a liability
O 3. Inventories are valued at the lower of cost and net realisable value on the Balance Sheet while in contrast, cash is
valued at fair value
O 4. The revenue realisation principle states that revenue can only be recognised when there has been an arms-length
transaction

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