A present obligation that will transfer assets from an entity in the future,exists in which of the following cases?
i.A sole proprietor takes out a loan to purchase inventory for her business
ii.Employees' wages are owed for the previous fortnight
iii.A company issues ordinary shares to increase its capital base

Question

Quizplus · Accepted Answer

i. Taking out a loan creates an obligation to repay the loan, which involves transferring assets (money) in the future. ii. Owning wages to employees is a present obligation that will result in the transfer of assets (money) when the wages are paid. iii. Issuing ordinary shares to increase capital does not involve a future outflow of assets but rather an inflow, so it does not fit the definition of a present obligation that will transfer assets from the entity.

A Present Obligation That Will Transfer Assets from an Entity