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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

At 31 March, Kaveri Traders Ltd. has the following items: a debtor of Rs 4,00,000 who has contractually agreed to pay in 60 days and for whom the amount is received after year end; a legal claim against the company where an outflow is possible but not probable; and an amount of Rs 2,50,000 payable to a supplier for goods already received. Under the Framework, how many of these items meet the definition of a liability to be recognised as such?

Only the Rs 2,50,000 supplier payable qualifies. It is a present obligation from a past event (receipt of goods) expected to cause an outflow. The debtor balance is an asset, and the possible legal claim is a contingent liability, not recognised as a liability.

  1. ANone of them
  2. BOnly the supplier payable of Rs 2,50,000Correct
  3. CThe legal claim and the supplier payable
  4. DAll three

Explanation

A liability is a present obligation arising from past events whose settlement is expected to result in an outflow of resources. The supplier payable meets this. The debtor is an asset, not a liability. The legal claim with only a possible outflow is a contingent matter, not a recognised liability.

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