Question

Take any two examples of liabilities and test if they meet all three requirements of liability recognition criteria,

Answer 1

1) Notes Payable (eg : $1,00,000 )

2) Accounts payable (eg : $40,000)

Liability Recognition criteria :

i) Present obligiation as result of Past event.

ii) Measured Reliabily.

iii) Outflow of Economic resources.

1) Notes payable

i) Money received for Notes Issued in past is to be settled in Present .

ii) It can be measured in monetary terms i.e., $1,00,000

iii) Liability can be settled by paying Cash i.e., results in outflow of economic resources.

Hence, Liability Recognition criteria satisified.

2) Accounts payable

i) Inventory purchased in Past which has to be settled in Present.

ii) It can be measured in monetary terms i.e.,$40,000

iii) Liability can be settled by paying Cash i.e., results in outflow of economic resources.

Hence, Liability Recognition criteria satisified.