An entity has decided to commit itself to the purchase of a new building in the next financial year.Under the Framework:
A) a liability exists because it is probable that a future sacrifice of economic benefits will be required
B) no liability exists because there is no present obligation
C) a liability exists because there is a constructive obligation
D) a liability exists because there is an equitable obligation

Question

Quizplus · Accepted Answer

No liability exists at this stage because there is no present obligation that meets the definition of a liability under the accounting framework. A decision or intention to purchase in the future does not create a present obligation.

An Entity Has Decided to Commit Itself to the Purchase