Liabilities

Question 1

What is a liability

Answer 1

a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits

Question 2

Essential characteristics of a liability

Answer 2

1. A present obligation to another entity
2. The present obligation arises as a result of past events
   ○ The event resulting in future sacrifice of economic benefits must have occurred
3. An outflow of resources embodying economic benefits is expected to flow from the entity as a result of settling the present obligation

Question 3

Recognition of Liabilities

Answer 3

○ Probable
- It is more than likely that the future economic benefits will flow from the business to another entity

○ Reliably Measured
- The value of the liability can be measured reliably (Involves the use of estimates)

Question 4

Types of Liabilities

Answer 4

• Trade and other payables
• Borrowings
• Tax liabilities
• Provisions
• Secured debts

Question 5

How are liabilities classified?

Answer 5

according to their nature

Question 6

Classifications of liability may be based on

Answer 6

○ Liquidity 
○ Level of security of guarantee
○ Expected timing of the future sacrifice 
○ Source
○ Conditions attached to the liabilities