Question

Which of the following statements is correct about accounting for financial​ liabilities? A.Financial liabilities can only...

Which of the following statements is correct about accounting for financial​ liabilities?

A.Financial liabilities can only be accounted for using amortized cost.

B.Financial liabilities can be accounted for using historical cost.

C.Financial liabilities can only be accounted for using fair value though profit and loss.

D.Financial liabilities can be accounted for using amortized cost or fair value.

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Answer #1

Financial liability means a liability for which there is an obligation to deliver cash or other financial assets. Financial liability is an outcome of past transactions like money owed to creditors due to past purchases, debts payable, interest payable, etc.

Accounting for financial liabilities is done initially through fair value method. However for subsequent measurement, accounting can be done either by amortized cost method, fair value method, etc.

Correct answer is option D. Financial Liabilities can be accounted for using amortized cost or fair value

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