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ACCA Applied Knowledge · Financial Accounting · The context and purpose of financial statements for external reporting

Under the IASB Conceptual Framework, which of the following best defines a liability?

A liability is a present obligation of the entity to transfer an economic resource as a result of past events. The obligation must exist now and arise from a past event; merely expecting to pay cash later or intending future actions is not enough.

  1. AA present obligation of the entity to transfer an economic resource as a result of past eventsCorrect
  2. BAny amount of cash that the entity expects to pay in the future
  3. CA possible obligation arising from future events that management intends to undertake
  4. DA resource controlled by the entity from which future economic benefits are expected

Explanation

A liability is a present obligation to transfer an economic resource arising from past events. Option D defines an asset. Future intended payments need not be present obligations, and possible obligations from future events do not qualify.

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