A liability can be recognized when
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A. B. C. D.D
The amount or the creditor need not be certain and some future payments such as wages to be paid in the future may not be reported as liabilities.
The correct answer is C. an obligation exists to make a future payment based on a past event.
To understand why this answer is correct, let's break down the options:
A. When the amount is uncertain: This is not the sole condition for recognizing a liability. While it is true that the exact amount of a liability may sometimes be uncertain, it is not the determining factor for recognizing it. Liabilities can still be recognized even if their exact amounts are not known, as long as an obligation exists.
B. When the identity of the creditor is uncertain: Similar to the previous option, the identity of the creditor does not determine whether a liability can be recognized. Even if the specific creditor is unknown, if there is an obligation to make a future payment based on a past event, a liability can still be recognized.
C. An obligation exists to make a future payment based on a past event: This is the correct condition for recognizing a liability. A liability represents a present obligation arising from past events, such as a contractual agreement or a legal requirement, that will require the entity to transfer economic resources in the future. The obligation could be to pay cash, provide goods or services, or fulfill other commitments. When this obligation exists, a liability should be recognized in the financial statements.
D. All of these answers are correct: This option is incorrect because options A and B are not necessarily correct conditions for recognizing a liability. The only necessary condition for recognizing a liability is that there is an obligation to make a future payment based on a past event.
In summary, a liability can be recognized when there is an obligation to make a future payment based on a past event. This is the defining condition for recognizing a liability, regardless of uncertainties regarding the amount or the identity of the creditor.