Question

If the amount of any known liability can be determined with substantial accuracy:

• A. a definite liability should be created
• B. a provision should be created
• C. a reserve should be created
• D. none of these

Answer 1

Answer:

A. a definite liability should be created

Liabilities are to be created in the business if these are identifiable, determine with substantial accuracy. A liability which may arise in future on happening of an event may be considered as contingent liability and to be shown as disclosure. A known liability need to be recorded in books of account.