Asked by Brandon Wayne on Jul 23, 2024
Verified
Which of the following is an example of a liability where there is no corresponding asset?
A) A debenture issued by a listed company.
B) A mortgage.
C) A provision for warranties.
D) A provision for decommissioning.
Corresponding Asset
An asset that is directly related or linked to another activity or transaction, often in financial reporting or accounting.
Provision For Warranties
An estimate of future costs related to repairing or replacing products under warranty, recognized as a liability on the balance sheet.
- Gain insight into the valuation of liabilities and the foundational assumptions applied.
Verified Answer
DG
denetriA gardnerJul 29, 2024
Final Answer :
D
Explanation :
A provision for decommissioning is a liability without a corresponding asset because it represents the estimated cost of dismantling and removing long-lived assets such as oil rigs or nuclear power plants at the end of their useful lives. There is no corresponding asset to offset this liability because the asset will no longer exist by the time decommissioning takes place. The other options all have corresponding assets - debentures are backed by the company's assets, mortgages are secured by the property, and provisions for warranties are offset by the revenue generated from sales.
Learning Objectives
- Gain insight into the valuation of liabilities and the foundational assumptions applied.