Question: Outline whether you would recognise each item below as a liability, justifying your answer by reference to the Conceptual Frameworks liability definition and recognition criteria:

Outline whether you would recognise each item below as a liability, justifying your answer by reference to the Conceptual Framework’s liability definition and recognition criteria:

(a) Your parents have lent you $20 000 to buy a car and have told you to pay it back whenever you like.

(b) You are guarantor for your friend’s bank loan:

(i) You have no reason to believe that your friend will default on the loan.

(ii) Your friend has been encountering serious financial problems and you think it is likely that he will default on the loan.

(c) The court has ordered you to repair the environmental damage your firm has caused to a park next to your firm’s premises. You have no idea as yet how much this repair work will cost.

(d) Your firm has a 20-year history of donating $2000 each year to the Telethon Appeal. As yet, no amount has been paid in the current year and nothing has been recorded in the accounts.

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a Assuming that you are the accounting entity concerned this fails the definition as it does not constitute a future sacrifice of economic benefits Paragraph 61 of the Framework states that an essenti... View full answer

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