Question

Question 12. The Conceptual Framework for Financial Reporting defines the elements of the financial statements. Which...

Question 12. The Conceptual Framework for Financial Reporting defines the elements of the financial statements. Which of the following statements is true?

A liability exists when an transfer of economic resource is certain

The definition of an asset centres on the concept of ownership.

An expense is an increase in an asset or a decrease in a liability.

The Conceptual Framework defines equity as a residual.

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Answer #1

Your required answer is option A i.e. A liability exists when an transfer of economic resource is certain

Explanation:

There are five elements of financial statements:

Assets: It is a present economic controlled by company

Liabilities: A liability exist only when transfer of economic resource is certain as a result of past events

Equity: It is residual interest in assets but after considering all its liabilites

Expense: Decrease in assets and increase in liabilities

Income: Increase in assets and decrease in assets.

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