The document discusses current liabilities, provisions, and contingencies. It defines a liability and current liability, and lists common types of current liabilities such as accounts payable, notes payable, and income taxes payable. It also discusses classifying short-term debt as current or non-current depending on whether an agreement to refinance is completed before the reporting date for IFRS or before the financial statements are issued for US GAAP. The document also briefly discusses long-term liabilities such as bonds payable, notes payable, and off-balance sheet financing arrangements.

1. 13-1

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
Disclosures
13-2

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. 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. 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. 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. 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. 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. 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 Issuance
Dec. 31, 2010 Feb. 1, 2011 Mar. 1, 2011 Apr. 1, 2011
13-9
LO 2 Explain the classification issues of short-term
debt expected to be refinanced.

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. 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 Issuance
Dec. 18, 2010 Dec. 31, 2010 Feb. 15, 2011 Mar. 31, 2011
13-11
LO 2 Explain the classification issues of short-term
debt expected to be refinanced.

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. ► 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. 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 payable
13-14

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 Leases
13-15 LO 8 Explain the reporting of off-balance-sheet financing arrangements.