chapter 16

Question 1

liabilities

Answer 1

• present obligation of the entity arising from past events
• result from past
• present obligation
• future outflow of resources embodying economic benefits

Question 2

provisions

Answer 2

• liabilities of uncertain timing or amount
• accumulated depreciation and the allowance for doubtful debts
• can arise from alot of situations / events
• e.g long service leave,
• recognised when an entity has a present obligation as a result of a past event

Question 3

contingent liabilities

Answer 3

• a possible obligation arising from a past event that will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events that are not fully controlled by the entity
• are not to be included in the financial statements

Question 4

bills payable

Answer 4

• the liability is evidenced by a bill of exchange or promissory note
• issued when a business borrows money from a bank or other financial institution

Question 5

employment benefits

Answer 5

• compensation for employees for services rendered under employment contracts
• for each of the expenses generated, corresponding liabilities are generated. eg. wages and wages payable.
• all forms of consideration given by an entity in exchange for services rendered by employees

Question 6

debentures

Answer 6

• a written promise to pay a principal amount at a specified time and interest on the principal at a specified rate per period
• becomes a non-current liability to the issuer nd an investment to the buyer
• must establish a trust deed, and appoint a trustee under the deed.
• > indicates intereste rate, dates to be paid, etc.