Answered: Which of the following statement/s are…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Which of the following statement/s are incorrect?
I. An enterprise should not recognize a contingent liability
II. The amount recognized as a provision should be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.
III. A provision is a liability of certain timing and amount.
IV. Accruals are liabilities to pay for goods or services that have been received or supplied but have not been paid.

I and IV only

III only

I, II and IV

II and IV only

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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