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

Under the IFRS Conceptual Framework, which of the following is the correct definition of a liability?

A liability is a present obligation of the entity to transfer an economic resource as a result of past events. A possible future obligation does not qualify, a credit balance is not necessarily a liability, and a controlled resource producing benefits describes an asset instead.

  1. AA present obligation of the entity to transfer an economic resource as a result of past eventsCorrect
  2. BA possible obligation arising from future events that the entity expects to settle
  3. CAny amount the entity has recorded as a credit balance in its ledger
  4. DA resource controlled by the entity from which future economic benefits are expected

Explanation

The Conceptual Framework defines a liability as a present obligation of the entity to transfer an economic resource as a result of past events. A possible obligation is not a present obligation. A credit balance may be equity or income. The last option is the definition of an asset, so it is wrong.

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