13-1
Current Liabilities and Contingencies            Current Liabilities and Contingencies                                    ...
What is a Liability?                      What is a Liability?       Three essential characteristics:        1. Present ob...
What is a Current Liability?                   What is a Current Liability?       Current liability is reported if one of ...
What is a Current Liability?                  What is a Current Liability?       Typical Current Liabilities:           A...
What is a Current Liability?                 What is a Current Liability?       Current Maturities of Long-Term Debt      ...
What is a Current Liability?                 What is a Current Liability?       Short-Term Obligations Expected to Be     ...
What is a Current Liability?                   What is a Current Liability?       E13-4 (Refinancing of Short-Term Debt): ...
What is a Current Liability?                   What is a Current Liability?       Short-term obligation A: Hendricks has a...
What is a Current Liability?                    What is a Current Liability?        Short-term obligation A: Hendricks has...
What is a Current Liability?                    What is a Current Liability?        Short-term obligation B: Hendricks als...
What is a Current Liability?                    What is a Current Liability?        Short-term obligation B: Hendricks als...
►   IFRS requires that the current portion of long-term            debt be classified as current unless an agreement to   ...
Long-Term Liabilities                             Long-Term Liabilities                                  Long-Term        ...
Off-Balance-Sheet Financing                Off-Balance-Sheet Financing        Off-balance-sheet financing is an attempt to...
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Slide 3 liabilities ifrs

  1. 1. 13-1
  2. 2. Current Liabilities and Contingencies Current Liabilities and Contingencies Presentation and Current Liabilities Provisions Contingencies Analysis What is a liability? Recognition Contingent Presentation of What is a current Measurement liabilities current liabilities liability? Common types Contingent assets Analysis of current liabilities Disclosures13-2
  3. 3. What is a Liability? What is a Liability? Three essential characteristics: 1. Present obligation. 2. Arises from past events. 3. Results in an outflow of resources (cash, goods, services).13-3
  4. 4. What is a Current Liability? What is a Current Liability? Current liability is reported if one of two conditions exists: 1. Liability is expected to be settled within its normal operating cycle; or 2. Liability is expected to be settled within 12 months after the reporting date. The operating cycle is the period of time elapsing between the acquisition of goods and services and the final cash realization resulting from sales and subsequent collections.13-4 LO 1 Describe the nature, type, and valuation of current liabilities.
  5. 5. What is a Current Liability? What is a Current Liability? Typical Current Liabilities:  Accounts payable.  Customer advances and deposits.  Notes payable.  Unearned revenues.  Current maturities of long- term debt.  Sales taxes payable.  Short-term obligations  Income taxes payable. expected to be refinanced.  Employee-related liabilities.  Dividends payable.13-5 LO 1 Describe the nature, type, and valuation of current liabilities.
  6. 6. What is a Current Liability? What is a Current Liability? Current Maturities of Long-Term Debt Portion of bonds, mortgage notes, and other long-term indebtedness that matures within the next fiscal year. Exclude long-term debts maturing currently if they are to be: 1. Retired by assets accumulated that have not been shown as current assets, 2. Refinanced, or retired from the proceeds of a new debt issue, or 3. Converted into ordinary shares.13-6 LO 1 Describe the nature, type, and valuation of current liabilities.
  7. 7. What is a Current Liability? What is a Current Liability? Short-Term Obligations Expected to Be Refinanced Exclude from current liabilities if both of the following conditions are met: 1. Must intend to refinance the obligation on a long-term basis. 2. Must have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.13-7 LO 2 Explain the classification issues of short-term debt expected to be refinanced.
  8. 8. What is a Current Liability? What is a Current Liability? E13-4 (Refinancing of Short-Term Debt): The CFO for Hendricks Corporation is discussing with the company’s chief executive officer issues related to the company’s short-term obligations. Presently, both the current ratio and the acid-test ratio for the company are quite low, and the chief executive officer is wondering if any of these short-term obligations could be reclassified as long-term. The financial reporting date is December 31, 2010. Two short-term obligations were discussed, and the following action was taken by the CFO. Instructions: Indicate how these transactions should be reported at Dec. 31, 2010, on Hendricks’ statement of financial position.13-8 LO 2
  9. 9. What is a Current Liability? What is a Current Liability? Short-term obligation A: Hendricks has a $50,000 short-term obligation due on March 1, 2011. The CFO discussed with its lender whether the payment could be extended to March 1, 2013, provided Hendricks agrees to provide additional collateral. An agreement is reached on February 1, 2011, to change the loan terms to extend the obligation’s maturity to March 1, 2013. The financial statements are authorized for issuance on April 1, 2011. Liability of Refinance Liability due Statement $50,000 completed for payment IssuanceDec. 31, 2010 Feb. 1, 2011 Mar. 1, 2011 Apr. 1, 201113-9 LO 2 Explain the classification issues of short-term debt expected to be refinanced.
  10. 10. What is a Current Liability? What is a Current Liability? Short-term obligation A: Hendricks has a $50,000 short-term obligation due on March 1, 2011. The CFO discussed with its lender whether the payment could be extended to March 1, 2013, provided Hendricks agrees to provide additional collateral. An agreement is reached on February 1, 2011, to change the loan terms to extend the obligation’s maturity to March 1, 2013. The financial statements are authorized for issuance on April 1, 2011.Current Liability of $50,000 Since the agreement was not in place as of the reporting date (December 31, 2010), the obligation should be Dec. 31, 2010 reported as a current liability.13-10 LO 2 Explain the classification issues of short-term debt expected to be refinanced.
  11. 11. What is a Current Liability? What is a Current Liability? Short-term obligation B: Hendricks also has another short-term obligation of $120,000 due on February 15, 2011. In its discussion with the lender, the lender agrees to extend the maturity date to February 1, 2012. The agreement is signed on December 18, 2010. The financial statements are authorized for issuance on March 31, 2011. Refinance Liability of Liability due Statement completed $120,000 for payment IssuanceDec. 18, 2010 Dec. 31, 2010 Feb. 15, 2011 Mar. 31, 201113-11 LO 2 Explain the classification issues of short-term debt expected to be refinanced.
  12. 12. What is a Current Liability? What is a Current Liability? Short-term obligation B: Hendricks also has another short-term obligation of $120,000 due on February 15, 2011. In its discussion with the lender, the lender agrees to extend the maturity date to February 1, 2012. The agreement is signed on December 18, 2010. The financial statements are authorized for issuance on March 31, 2011. Non-Current Refinance Liability of Since the agreement was in place as of completed $120,000 the reporting date (December 31, 2010), the obligation is reported as a non-Dec. 18, 2010 Dec. 31, 2010 current liability.13-12 LO 2 Explain the classification issues of short-term debt expected to be refinanced.
  13. 13. ► IFRS requires that the current portion of long-term debt be classified as current unless an agreement to refinance on a long-term basis is completed before the reporting date. U.S. GAAP requires companies to classify such a refinancing as current unless it is completed before the financial statements are issued.13-13
  14. 14. Long-Term Liabilities Long-Term Liabilities Long-Term Bonds Payable Special Issues Notes Payable Issuing bonds Notes issued at face Extinguishments value Types and ratings Fair value option Notes not issued at face Valuation value Off-balance-sheet financing Effective-interest Special situations method Presentation and analysis Mortgage notes payable13-14
  15. 15. Off-Balance-Sheet Financing Off-Balance-Sheet Financing Off-balance-sheet financing is an attempt to borrow monies in such a way to prevent recording the obligations. Different Forms: ► Non-Consolidated Subsidiary ► Special Purpose Entity (SPE) ► Operating Leases13-15 LO 8 Explain the reporting of off-balance-sheet financing arrangements.
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