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    Question

    If the amount of any known liability cannot be

    determined accurately, then:
    A Provision should be created. Correct Answer Incorrect Answer
    B Provision should not be created. Correct Answer Incorrect Answer
    C Reserve should be created. Correct Answer Incorrect Answer
    D Reserve should not be created Correct Answer Incorrect Answer

    Solution

    When the amount of a known liability cannot be determined accurately but is expected to be incurred, it is a common accounting practice to create a provision. A provision is a liability that is recognized when the amount is uncertain but can be reasonably estimated.

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