What
is liability?
Liability is a present
obligation of the organization arising from the past event. For example entity
has purchase goods on credit, it is liability because this is present
obligation of the organization arises from the past event, but a plan to
purchase in next year does not give rise to a liability because it is future
event.
How
liability can be settled?
A liability can be settled
in number of ways i.e. payment of cash , transfer of other asset, providing a
service, replacement of liability , convert liability into equity i.e. share
issue, liability can be settled by writing of the liability.
Can
all liabilities are measured accurately?
Some liabilities are
measured with accuracy i.e. payable; however, some liabilities cannot be
measured with ultimate accuracy, rather calculated by making a reasonable
estimated i.e. provision for bad debt or provision of warranty.
Why
provision is liability?
Provision is liabilities
because they arise from the event which has already taken place, for example
provision for bad debt and warranty arises due to the sales which have already
taken place. If there were no sales there would be no provision.
