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ACCA Applied Knowledge · Financial Accounting · The main elements of financial statements

Which of the following items should be recognised as a liability in the statement of financial position of Lyra Co at its year end of 31 December?

The goods received on 28 December from the supplier create a liability. Delivery is a past event giving a present obligation to pay, so a payable is recognised even though no invoice has arrived. Mere intentions, future profits and remote lawsuits are not liabilities.

  1. AGoods received on 28 December from a supplier, not yet invoiced or paidCorrect
  2. BA board intention, not communicated to anyone, to buy new premises next year
  3. CExpected future profits from a signed order due for delivery in February
  4. DA possible lawsuit that has only a remote chance of succeeding against Lyra

Explanation

Receiving goods creates a present obligation from a past event, so a payable is recognised even without an invoice. An unannounced intention and expected future profits are not present obligations. A remote lawsuit does not lead to a probable outflow.

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