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    Intermediate Accounting 2 Topic 1

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    John Anjelo Moralde
    This document discusses current liabilities under accounting standards. It defines a liability as a present obligation arising from past events that will likely cause an outflow of economic benefits. Current liabilities are obligations due to be settled within one year or the normal operating cycle. Financial liabilities include payables, lease obligations, and liabilities to deliver cash or financial assets. They are initially measured at fair value less transaction costs and subsequently at amortized cost. Non-financial liabilities like taxes are initially measured based on settlement amounts. Trade payables are generally current while non-trade payables may be current or noncurrent depending on the settlement period. Dividends payable are recognized as a liability once appropriately authorized.

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    Intermediate Accounting 2 Topic 1

    Uploaded by

    John Anjelo Moralde
    18 views3 pages
    This document discusses current liabilities under accounting standards. It defines a liability as a present obligation arising from past events that will likely cause an outflow of economic benefits. Current liabilities are obligations due to be settled within one year or the normal operating cycle. Financial liabilities include payables, lease obligations, and liabilities to deliver cash or financial assets. They are initially measured at fair value less transaction costs and subsequently at amortized cost. Non-financial liabilities like taxes are initially measured based on settlement amounts. Trade payables are generally current while non-trade payables may be current or noncurrent depending on the settlement period. Dividends payable are recognized as a liability once appropriately authorized.

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    This document discusses current liabilities under accounting standards. It defines a liability as a present obligation arising from past events that will likely cause an outflow of economic benefits. Current liabilities are obligations due to be settled within one year or the normal operating cycle. Financial liabilities include payables, lease obligations, and liabilities to deliver cash or financial assets. They are initially measured at fair value less transaction costs and subsequently at amortized cost. Non-financial liabilities like taxes are initially measured based on settlement amounts. Trade payables are generally current while non-trade payables may be current or noncurrent depending on the settlement period. Dividends payable are recognized as a liability once appropriately authorized.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    18 views3 pages

    Intermediate Accounting 2 Topic 1

    Uploaded by

    John Anjelo Moralde
    This document discusses current liabilities under accounting standards. It defines a liability as a present obligation arising from past events that will likely cause an outflow of economic benefits. Current liabilities are obligations due to be settled within one year or the normal operating cycle. Financial liabilities include payables, lease obligations, and liabilities to deliver cash or financial assets. They are initially measured at fair value less transaction costs and subsequently at amortized cost. Non-financial liabilities like taxes are initially measured based on settlement amounts. Trade payables are generally current while non-trade payables may be current or noncurrent depending on the settlement period. Dividends payable are recognized as a liability once appropriately authorized.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    TOPIC LEARNING OUTCOME:

    Distinguish the different types of liabilities as to


    TOPIC # 1: their characteristics, recognition, measurement,
    presentation and disclosure requirements,
    CURRENT including their interest components.

    LIABILITIES

    READING ASSIGNMENT

    Note: While reading Chapter 1, draft out your personal summary notes on your notebook. Your instructor
    highly encourages that you use illustrations, diagrams, tables and the like. Be creative! These personal
    summary notes will become extremely useful by the time you reach your final year in the Accountancy
    program and during your formal review for the CPA Licensure Examination, so make sure to give your
    best in simplifying what you can! 

    LECTURE NOTES

    Liabilities
    PAS 1 prescribes the basis for presentation of general purpose financial statements to improve comparability
    both with the entity's financial statements of previous periods and with the financial statements of other
    entities.

    Essential characteristics of a liability


    1. Present obligation (Legal or Constructive)
    2. Arising from past events
    3. Outflow of economic benefits

    Financial liabilities
    A financial liability is any liability that is a contractual obligation:
    a. to deliver cash or another financial asset to another entity; or
    b. to exchange financial assets or financial liabilities with another entity under conditions that are
    potentially unfavorable to the entity; or

    Examples of financial liabilities


    1. Payables such as accounts, notes, loans, bonds payable and accrued expenses that are payable in cash.
    2. Finance lease obligations.
    3. Liabilities held for trading such as obligations to deliver financial assets borrowed by a “short seller”
    (i.e. an entity that sells financial assets it has borrowed and does not yet own).
    4. Preference shares issued with mandatory redemption.
    5. Security deposits received that are to be returned to tenants at the end of lease term.
    6. Obligations to deliver a variable number of own shares worth a fixed amount of cash.

    Page | 6
    The following are not financial liabilities
    1. Unearned revenues and warranty obligations that are to be settled by future delivery of goods or
    services, rather than cash.
    2. Taxes, SSS premiums, Philhealth and other payables arising from statutory requirements and not
    from contracts.
    3. Commodity contracts that either cannot be settled in cash or which are expected to be settled by
    commodity exchange (e.g., coffee beans, gold bullion, oil, and the like). If a commodity contract is
    expected to be cash settled, it will be included as financial liability on the part of the cash payor.
    4. Constructive obligations. These obligations do not arise from contracts.

    Recognition of liabilities
    An item is recognized as a liability when:
    1. It meets the definition of a liability;
    2. It is probable that an outflow of resources embodying economic benefits will result from its
    settlement; and
    3. The settlement amount can be measured reliably.

    Measurement of financial liabilities


     Initial measurement – fair value minus transaction costs, except financial liabilities at FVPL whose
    transaction costs are expensed immediately.
     Subsequent measurement – amortized cost (except financial liabilities that are classified as held for
    trading and those that are designated; these are subsequently measured at fair value)

    Measurement of Non-financial liabilities


    Non-financial liabilities are initially measured at the best estimate of the amounts needed to settle those
    obligations or the measurement basis required by other applicable standard.
    Examples:
    1. Obligations arising from statutory requirements (e.g., income tax payable)
    2. Unearned or deferred revenues
    3. Warranty obligations
    4. Commodity contracts that either cannot be settled in cash or which are expected to be settled by
    commodity exchange

    Current liabilities
    An entity shall classify a liability as current when:
    1. It expects to settle the liability in its normal operating cycle;
    2. It holds the liability primarily for the purpose of trading;
    3. The liability is due to be settled within 12 months after the reporting period; or
    4. The entity does not have an unconditional right to defer settlement of the liability for at least 12
    months after the reporting period.
    (PAS 1) All other liabilities are classified as noncurrent.

    Trade and non-trade payables


     Trade payables are obligations arising from purchases of inventory that are to be sold in the ordinary
    course of business. Other payables are classified as non-trade.
     Trade payables are classified as current liabilities when they are expected to be settled within the
    normal operating cycle or one year, whichever is longer.
     On the other hand, non-trade payables are classified as current liabilities only when they are expected
    to be settled within one year.

    Page | 7
    Dividends payable
    Under IFRIC 17, the liability to pay a dividend is recognized when the dividend is appropriately
    authorized and is no longer at the discretion of the entity, which is:
    1. the date when the declaration of the dividend (e.g., by management or the board of directors) is
    approved by the relevant authority (e.g., the shareholders) if the jurisdiction requires such approval,
    or
    2. the date when the dividend is declared (e.g., by management or the board of directors) if the
    jurisdiction does not require further approval.

    CONCEPTUAL PORTFOLIO

    1. Identify and give examples of the two types of obligations.

    2. Define and give examples of financial liabilities.

    3. List down the characteristics of, and requirements for financial liabilities as to:
    a. Recognition

    b. Derecognition

    c. Measurement

    d. Presentation

    e. Disclosure

    4. Differentiate current from noncurrent liabilities and give examples for each type.

    Page | 8

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