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financial versus contingent liability

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › financial versus contingent liability

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by Stephen Widberg.
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  • June 5, 2021 at 4:53 pm #623316
    Jiya024
    Member
    • Topics: 168
    • Replies: 56
    • ☆☆☆

    Dear Professor,

    Specimen 1: Q1)Kutchen co. part d)

    “IAS 32 states that a contingent obligation to pay cash which is outside the control of both parties to a contract meets the definition of a financial liability which shall be initially measured at fair value.”

    Professor i found this line in my exam kit. I think it has a flaw! i think it should not say financial liability.

    Isnt it exact definition of a contingent liability? which reads something like this i believe: “Present obligation as a result of a past event whose occurrence or non-occurrence will depend on future events beyond the control of the entity”

    June 6, 2021 at 1:04 pm #623430
    Stephen Widberg
    Keymaster
    • Topics: 11
    • Replies: 2837
    • ☆☆☆☆☆

    Discussion question, so they are testing knowledge of definitions. There may be no right answer.

    But I would say that, as the transaction is in connection with the purchase of a business, I think consideration should be RECOGNISED not DISCLOSED.

    As contingent liabilities are never recognised, I guess that makes it a financial liability.

    🙂

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