ACCA Applied Knowledge · Financial Accounting · The main elements of financial statements
Which of the following is a liability of Kestrel Co at the reporting date?
The trade payable for goods received is a liability because the entity has a present obligation, arising from a past event (receipt of goods), to transfer cash. Board intentions, future losses and uncommunicated donations are not present obligations.
- AA trade payable for goods received but not yet paid forCorrect
- BA planned purchase of machinery that has been approved by the board but not ordered
- CExpected future losses from operating in a new market next year
- DA decision by management to give a donation next year, not yet communicated
Explanation
A liability is a present obligation to transfer an economic resource as a result of past events. Goods already received create such an obligation. The other items are intentions or future events with no present obligation at the reporting date.
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