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IA2-1

Chapter 1 discusses the accounting for nonfinancial liabilities, defining them as present obligations to transfer economic resources due to past events. It classifies liabilities into current and noncurrent categories based on their settlement timelines and obligations, including provisions, lease liabilities, and employee benefits. The chapter also outlines the measurement and recognition of these liabilities in financial reporting.

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Ashryle Salazar
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11 views1 page

IA2-1

Chapter 1 discusses the accounting for nonfinancial liabilities, defining them as present obligations to transfer economic resources due to past events. It classifies liabilities into current and noncurrent categories based on their settlement timelines and obligations, including provisions, lease liabilities, and employee benefits. The chapter also outlines the measurement and recognition of these liabilities in financial reporting.

Uploaded by

Ashryle Salazar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter 1: Liabilities Accounting for Nonfinancial Liabilities

Liabilities - depending on relevant accounting standard


a. Provisions, Contingent liabilities, and
- present obligations to transfer an economic Contingent assets (PAS 37)
resource as a result of past events. b. Lease liabilities (PFRS 16)
a. Present Obligation c. Liabilities for employee benefits (PAS 19)
- duty/responsibility that an entity has Other Nonfinancial liabilities
no practical ability to avoid.
a. Estimated amount: Warranties, income taxes
- entity liable must be identified, but not
payable or value-added tax payable
necessary who is owed.
b. Equal to amount received from customers not
(1) Legal Obligation
yet earned: Unearned income, liability from gift
- consequence of binding contract certificate.
or statutory requirement.
(2) Constructive Obligation
- custom and a desire to maintain Measurement of liabilities
good business relations.
b. Obligation to transfer an economic Current Noncurrent
resource Initial Face amount Present Value
Subsequent Amortized Cost
- must be to pay cash, transfer noncash
asset or provide service at future.
c. Liability arises from a past event. Classification (financial reporting purposes)
- liability not recognized until incurred.
Current Liabilities
- obligating event (past event that leads
to legal or constructive obligations) a. within entity’s operating cycle.
b. trading liability
General Classification of Liabilities (accounting)
c. due to be settled w/in 12 months (for
Financial Liabilities Nonfinancial Liabilities nontrade)
- any liability that gives (a) Unearned Income d. entity does not have unconditional right to
rise to contractual defer settlement of liability for at least 12
obligation.
a. to deliver cash or (b) Estimated warranty
months after reporting period.
other financial asset liability
Noncurrent Liabilities
to another
b. to exchange financial (c) Income tax payable a. Noncurrent portion of long-term debt
assets/liabilities to (d) Constructive
another that are obligations b. Finance lease liability
potentially c. Deferred tax liability
unfavorable. d. Long-term obligation to officers
Note: certain liabilities such as lease and employee e. Long-term deferred revenue
benefits appear to financial liabilities but accounted
differently. Long-term debt falling due w/in one year
Accounting for Financial Liabilities General rule: Current
Financial Liabilities Exceptions:
Initial FV less transaction cost
Subsequent Amortized cost Refinancing on long term basis is completed on or
Exception FVPL before the end of reporting period – Noncurrent

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