Question

The accountant for RYK Ltd (RYK) is preparing the financial report for the period ended 31 December 20X6. The accountant notes that an electricity invoice for the last six months' usage has not been received.

Which of the following is most correct for recognising the liability?
A. A present obligation exists and RYK should recognise a liability based on a reliable estimate.
B. As the invoice has not yet been received, no present obligation exists so RYK cannot recognise a liability.
C. A possible obligation exists, however it is not certain when the invoice will be received so the accountant should recognise a provision.
D. A present obligation exists, however as the amount of usage cannot be reliably measured, the estimated costs can only be disclosed as a contingent liability.

Answer 1

The correct answer is A. RYK should recognize a liability based on a reliable estimate even if the electricity invoice has not been received.

Step-by-step explanation:

The correct answer is A. A present obligation exists and RYK should recognise a liability based on a reliable estimate.

In this scenario, the accountant should recognize a liability even though the electricity invoice has not been received. According to accounting principles, a liability should be recognized when there is a present obligation arising from a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.

In this case, RYK has a present obligation to pay for the electricity usage, even though the invoice has not been received yet. The accountant can make a reliable estimate based on the past usage and recognize the liability in the financial report.