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Pursuant to the conceptual framework, for an item to be characterised as a liability the definition of liabilities must be applicable to the transaction or

Pursuant to the conceptual framework, for an item to be characterised as a liability the definition of liabilities must be applicable to the transaction or event, and the recognition criteria should also be satisfied.

Applying the definition of liabilities, there are three key components in the definition of liability, these being:

1. There must be an expected future disposition of economic benefits to other entities.

2. There must be a present obligation.

3. A past transaction or other event must have created the obligation.

Take any two examples of liabilities and test if they meet all three requirements. Each example carries 4 marks.

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