2

QUESTION 2 Which of the following statements relating to the accounting treatment of the identified item is CORRECT? O 1. Dividends become a legal liability of the company when they are declared and as such, they are recorded in the current liabilities section of the Balance Sheet and as an expense on the Income Statement O 2. A contingent liability should only be disclosed in the Notes to the Financial Statements because it meets the accounting definition of a liability O 3. Inventories are valued at the lower of cost and net realisable value on the Balance Sheet while in contrast, cash is valued at fair value O 4. The revenue realisation principle states that revenue can only be recognised when there has been an arms-length transaction