Week 9 Liabilities
Q1: What is the definition of a liability?
A: A liability is ‘‘a present obligation of the entity to transfer an economic resource as a result of past events’ (AASB CF Framework para 4.26).
Martin’s comment: “You can see in the definition of a liability the ‘past’, ‘present’ and ‘future’ aspects of a liability … The essence of a liability is that it is an obligation that exists today (‘present’) which has resulted from events that have already occurred (‘past’). And at its heart, a liability is an obligation to transfer an economic resource to others (‘future’). This obligation is usually a legal one but can also be based on a firm’s normal business practice that it ‘has no practical ability to avoid’ regardless of whether it is legally enforceable or not (AASB CF Framework para 4.29).