Accounting: Present Obligation Criteria for Liability

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What is the third criterion for a liability?

The obligation must be a present obligation that exists as a result of past events (correct)
The obligation must be a future obligation resulting from past events
The obligation must be a present obligation resulting from future events
The obligation must be a future obligation that may never materialize

When does a present obligation exist as a result of past events?

When the entity has already obtained economic benefits or taken an action (correct)
When the entity is uncertain about whether it will transfer an economic resource
When the entity has yet to take any action related to the obligation
When the entity expects to obtain economic benefits in the future

Which of the following is NOT a condition for a present obligation to exist?

The legislation requires the entity to transfer an economic resource (correct)
The entity has already obtained economic benefits or taken an action
The obligation arises from past events
The entity will or may have to transfer an economic resource

If new legislation is enacted, when does a present obligation arise?

When the entity will or may have to transfer an economic resource due to the legislation (B) Signup and view all the answers

In what situation could a present obligation accumulate over time?

When economic benefits are obtained or an action is taken over time (A) Signup and view all the answers

What type of benefits could qualify as economic benefits obtained as a result of past events?

Goods, services, or financial rewards received by the entity (B) Signup and view all the answers

What is the key reason why the recognition criteria or measurement requirements for the liability of one party and the corresponding asset of the other party may differ?

To select the most relevant information that faithfully represents what it purports to represent (D) Signup and view all the answers

What is the key characteristic of a 'constructive obligation' as described in the text?

It arises from an entity's customary practices, published policies or specific statements (C) Signup and view all the answers

What is the key difference between a legally enforceable obligation and a 'constructive obligation' as described in the text?

Legally enforceable obligations arise from formal agreements, while constructive obligations arise from informal practices and statements (C) Signup and view all the answers

How does the text describe obligations that are conditional on a particular future action by the entity?

They are obligations that arise from the entity's duty or responsibility to transfer an economic resource (C) Signup and view all the answers

What is the key purpose of having different recognition criteria or measurement requirements for the liability of one party and the corresponding asset of the other party, as described in the text?

To select the most relevant information that faithfully represents what it purports to represent (C) Signup and view all the answers

What is the key characteristic of obligations that arise from an entity's customary practices, published policies or specific statements, as described in the text?

The entity has no practical ability to act in a manner inconsistent with those practices, policies or statements (C) Signup and view all the answers

What type of obligation is described in the passage as an example?

An obligation to deliver goods or provide services (C) Signup and view all the answers

According to the passage, which of the following is not a way an entity can settle an obligation to transfer an economic resource?

Fulfill the obligation by actually transferring the economic resource (C) Signup and view all the answers

Which type of obligation is described in the passage as an entity having until it has settled, transferred or replaced that obligation?

Obligations to issue a financial instrument that will oblige the entity to transfer an economic resource (C) Signup and view all the answers

Which of the following is NOT considered an obligation according to the passage?

An obligation to exchange economic resources with another party on favorable terms (B) Signup and view all the answers

What is the primary reason the passage discusses entities settling or replacing obligations to transfer economic resources?

To avoid the costs associated with actually transferring the economic resource (B) Signup and view all the answers