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Explain the loan taken by Dada Pty

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Question - In June 2019, the business Valerina Pty. Limited became a guarantor for Dada Pty. Limited. for a loan totaling $1,000,000. Dada Pty. Ltd. is one of the subsidiaries and has been performing extremely in the past couple of years. The chance to default on loan is close to nil.

Required -

(i) Using the definition of the term "liability" per the Conceptual Framework, explain whether the loan of $1,000,000 taken by Dada Pty. Limited can be considered as a liability to the business Valerina Pty. Limited.

(ii) The CEO of Valerina Pty. Limited trusts that this matter should be included on their balance sheet as a liability.

Explain if the loan taken by Dada Pty. Ltd. meets the recognition criteria of a liability for Valerina Pty. Limited.

(iii) Given your answers in part (i) and part (ii), state whether or not the loan taken by Dada Pty. Ltd. can appear on the Valerina Pty. Limited's balance sheet.

Reference no: EM132822191

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