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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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