CFA Practice Question

CFA Practice Question

A liability can be recognized when

I. an obligation exists to make a future payment based on a past event
II. when the identity of the creditor is uncertain
III. when the amount is uncertain
A. I and II.
B. I and III.
C. I, II and III.
Explanation: The amount or the creditor need not be certain and some future payments such as wages to be paid in the future may not be reported as liabilities.

User Contributed Comments 4

User Comment
jpducros An simple example would clarify everything...
yongsl88 How can you recognize a liability when the amount is uncertain? This is too strict. Shouldn't it be "when the amount can be estimated"??
jingie Think about insurance companies. The policies they write will probably incur liabilities that are are uncertain in both amount and to whom it is paid.
jjhigdon The amount can be less than certain, as long as its reasonably estimatable.
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