Chapter 11 - Current Financial Liabilities Flashcards
Fiancial vs Non-financial liabilities Measurement?
Financial:
initially FV
subsequently at amortized cost (either FVPL or FVOCI)
Non-financial:
best estimate method at balance sheet date
What are current liabilities?
Short-term, generally expected to be settled within one year of balance sheet or normal operating cycle, held-for-trading liabilities are current, or you cannot have an unconditional right to defer the liability settlement for at least 12 months
What are Trade payables (A/P)
Amounts owed for goods, supplies, services
PURCHASED ON ACCOUNT, usually paid within 40,45, 60 days (ex: 2/10, n/30)
Record A/P when the goods are received (accrual must include invoices “in transit” on balance sheet date)
How to record A/P? Gross method
Purchase date:
Dr. Inventory
Cr. Trade payables
When making payment: If discount taken: Dr. Trade Cr. Cash (og amount - discount) Cr. Inventory (the discount)
If discount is not taken:
Dr. Trade payables
Cr. Cash
How to record A/P? Net method
Purchase date:
Dr. Inventory (og amount - discount)
Cr. Trade payables (og amount - discount)
When making payment:
If discount taken:
Dr. Trade (og amount - discount)
Cr. Cash (og amount - discount)
If discount is not taken:
Dr. Trade payables (og amount - discount)
Dr. Disocunt loss (expense) (discount)
Cr. Cash (og amount)
When are sales taxes payable/receivable? Exceptions?
GST/PST/HST are:
- Payable when collected on eligible sales
- Receivable when paid on eligible purchases
Remit net amounts to appropriate authorities
PST exception: goods purchased for resale are generally exempt from PST however PST on internal use purchases generally not recoverable
Recognition of sales tax - for vendor
Dr. AR
Cr. Sales revenue
Cr. PST payable
Cr. GST payable
Recognition of sales tax - for purchaser
Dr. Expense (include PST if goods are for internal use)
Dr. GST receivable
Dr. PST receivable (if the good is not for internal use)
Cr. AP
Recognition of dividends payable - Cash dividends
They are a liability when declared; current liabilities
Recognition of dividends payable - Stock dividends
Not a liability even when declared because no future outflows of economic resources are involved (recorded through retained earnings and other equity account)
Recognition of dividends payable - dividends in arrears on preferred shares
Undeclared cumulative preferred shares dividends are NOT recognized as a liability (but they require a note disclosure)
What are Royalty fee payable?
Liability created by contractual agreement (payments are % of revenue, usually based on sales)
Unpaid royalties are current liabilities
Measurement of notes payable - interest bearing vs non-interest bearing
Interest bearing: FV
Non-interest bearing: valuation techniques, ex: discounted cash flows
Aspects of warranties?
Measured using expected value techniques
Can be extended beyond a year, but all charged in sale year
Can be current or non-current
Warranties embeded in sales price - recognition as incurred + adjust at year-end
Time of sale: no entry
Warranty costs incurred:
Dr. Warranty expense
Cr. Cash/inventory/Payroll
Year-end adjusting entry:
Dr. Warranty expense
Cr. Provision - Warranty payable
