8. Accounting For Liabilities

Question 1

What type of liability is corporation tax?

Answer 1

A current liability

Question 2

How do you account for corporation tax?

Answer 2

1. Initial tax journal (estimate)
2. Under provision (too little)
3. Over provision (too much)

Question 3

How is a lease liability measured?

Answer 3

The present value of future lease payments

Question 4

What is the interest rate implicit?

Answer 4

The interest rate on lease loan

Question 5

How is the right of use asset initially measured?

Answer 5

At cost which is the present value of the future lease payments

Question 6

How do you subsequently measure a lease?

Answer 6

Cost - depreciation - impairments

Question 7

How is a leased asset deprecated?

Answer 7

Over the shorter of the lease term and the useful life of the asset. If the entity becomes the legal owner at the end of the term, it is depreciated over the useful life

Question 8

What is the interest rate implicit in the lease?

Answer 8

The discount rate at which the present value of the minimum lease payments and the residual value would be equal to the fair value of the leased asset.

Question 9

What is the incremental borrowing rate?

Answer 9

The rate of interest that the lessee would have to pay on a similar lease

Question 10

What happens to a low value asset or short term lease as per IFRS16?

Answer 10

They are expenses in the p/l on a straight line basis

Question 11

What is a provision?

Answer 11

A type of liability that is of uncertain timing or amount

Question 12

When do you recognise a provision?

Answer 12

If it is;

1. A present obligation as a result of a past event;
2. Probable that an outflow of economic resources will be required to settle the obligation, and
3. A reliable estimate can be made of the amount of obligation

Question 13

What is a constructive obligation?

Answer 13

An obligation that derived from the actions of an entity where:
A) an established pattern of past practice, published policies or a specific statement the entity has indicated to other parties that will accept certain responsibilities, and
B) as a result the entity has created a valid expectation in other parties that will discharge those responsibilities

Question 14

What is probable?

Answer 14

More than a 50% chance it will occur

Question 15

What is a contingent liability?

Answer 15

1. A possible obligation arising from past events whose exhaust ace only by the occurrence of one or more uncertain future events not wholly within the control of the entity, OR
2. A present obligation that arises from past events but is not recognised because:
   - it is not probable that an outflow of economic benefits will be required to settle an obligation, or
   - the amount of obligation cannot be measured reliably

Question 16

When is a contingent asset recognised?

Answer 16

When profit is virtually certain, if is only probably it is disclosed in the notes