Reference no: EM13487237
Background
Following is the definition of a liability from three sources:
? SFAC No. 6, paragraph 35: "Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events."
? IASB The Conceptual Framework for Financial Reporting, Chapter 4, paragraph 4.4(b): "A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits."
? The Boards' working definition as of October 2008 from the Joint Project on Conceptual Framework, Phase B - Elements and Recognition: "A liability of an entity is a present economic obligation for which the entity is the obligor."
Required
? Read each definition and compare and contrast the FASB and IASB versions and then compare to the Boards' definition.
? What is the best definition and why?
? Review the following items and evaluate if they should be recorded as a liability under the Boards' definition above. Focus on "... present economic obligation" and "... entity is obligor" in your analysis. Complete the table provided.
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Item
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"... present economic obligation"
(Y/N)
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"... entity is obligor"
(Y/N)
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Liability
(Y/N)
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Accounts payable
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Bank loan outstanding
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Future inventory purchases
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Discretionary employee bonuses
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Existing property lease
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Product warranty obligation
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Lawsuit settlement (no lawsuit has been filed and no manifestation of intent has been expressed)
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