Chapter 13 Study Cards Flashcards
Why are non-financial and current liabilities important for businesses?
Proper tracking helps manage cash flow, essential for covering business expenses and handling economic downturns.
How does IFRS define liabilities?
obligations to transfer an economic resource due to past events, meeting three conditions:
1) present, unavoidable obligation
2) requires transferring resources
3) arises from past events.
How does ASPE define liabilities?
obligations from past events that may result in transferring assets or providing services
three key characteristics:
a duty to others
little ability to avoid it
and the event has already occurred.
What are financial liabilities?o
Financial liabilities are contractual obligations to pay cash or financial assets, or swap financial assets/liabilities. They must come from contracts.
How are financial liabilities classified?
Classified as either financial or non-financial, based on the type of obligation.
How are financial liabilities initially measured?
They are measured at fair value, and subsequently, usually at amortized cost. Trading liabilities are measured at fair value.
How are transaction costs treated for financial liabilities?
Transaction costs are included in the initial measurement but expensed later.
How are non-financial liabilities measured under IFRS?
Best estimate of the required expenditure to settle the obligation at the reporting date.
How are non-financial liabilities measured under ASPE?
No specific rules; depends on the nature of the liability, with uncertain timing and amounts.
What defines current liabilities?
Liabilities that are expected to be settled within 12 months or during the normal operating cycle, whichever is longer.
How do IFRS and ASPE define current liabilities?
IFRS: Liabilities expected to be settled within 12 months, or held for trading, or due within the operating cycle.
ASPE: Similar definition but may have slight application differences.
What is line-of-credit/revolving debt? (Bank Indebtness)
A revolving debt agreement allowing multiple borrowings up to a limit, with repayments when funds are available.
What is accounts payable?
Amounts owed for goods or services purchased on open account, recorded when goods are received.
What is notes payable?
Written promises to pay a certain amount on a specified date, which can be interest-bearing or non-interest-bearing.
How are zero-interest-bearing notes handled?
The difference between cash received and the note’s face value represents interest, recorded as an expense over time.
What is the treatment for debt due within 12 months?
Debt due within 12 months is classified as a current liability. If due on demand, it’s reclassified as current.
When is short-term debt classified as long-term?
Short-term debt is classified as long-term if it will be refinanced for more than 12 months, without using current assets.
When is a dividend payable recognized?
It’s recognized as a liability on the declaration date and paid within 3 months.
Preferred Dividends in Arrears:
When are undeclared dividends on cumulative preferred shares a liability?
Not a liability until authorized; they must be disclosed if in arrears.
How are stock dividends payable treated?
Not recognized as liabilities, as they represent a transfer of equity.
Rents and Royalties Payable (Contingent Liabilities) What are contingent liabilities?
Liabilities dependent on specific conditions (e.g., franchise fees, additional rents, royalties), recognized when conditions are met.
How are customer deposits classified? (Customer Advances and Deposits)
Classified as current or non-current liabilities based on the expected settlement time frame.
How is sales tax payable handled?
Represents sales tax collected from customers but not yet remitted to the governmen
What is the treatment for GST?
GST payable is a liability and is reported on the financial position statement, netted against GST receivable.
What are employee-related liabilities?
Liabilities for wages, payroll deductions, short-term benefits, and bonuses, usually reported as current liabilities.
What are statutory deductions? (Payroll Deductions)
Mandatory deductions like CPP/QPP, EI, and income tax withholding.
What are compensated absences?
Time off (e.g., vacation or sick leave) for which employees are paid, either accumulating over time or occurring due to specific events.
How are bonuses and profit-sharing handled?
They are recorded as current liabilities, usually payable in the near term based on performance.
Decommissioning and Restoration Obligations (ARO)
Q: What are Asset Retirement Obligations (ARO)?
Obligations related to the retirement or decommissioning of long-lived assets, like nuclear facilities or oil and gas properties.
How does IFRS differ from ASPE regarding ARO?
IFRS recognizes both legal and constructive obligations
ASPE only recognizes legal obligations
How is an ARO recognized and measured?
It’s recognized at the best estimate of future costs and discounted to present value. The cost is added to the asset cost.
Non-Financial Liabilities Presentation & Analysis
Q: How are non-financial liabilities presented?
Presented separately to show the business’s obligations, with a focus on the liability’s timing and classification.
Differences Between IFRS & ASPE
IFRS recognizes both legal and constructive obligations, while ASPE focuses on legal obligations. IFRS also capitalizes certain costs differently.
