Question

If the amount of any known liability cannot be determined with substantial accuracy ___________________.

• A. A definite liability should be created.
• B. A provision should be created.
• C. A reserve should be created.
• D. None of these

Answer 1

Answer: (B)

A provision should be created.

If any amount of any known liability cannot be determined with substantial accuracy. Provision is a known liability but its amount and due date and indeterminate.

It is basically setting an amount aside for a probable liability. Its a contingent loss that's recognized as a liability.