Lesson 13 Liabilities

Question 1

When must contingent liabilities be accrued?

Answer 1

When they are probable and estimable

Question 2

When are dividends or dividends in arrears reported as liabilities?

Answer 2

When Declared

Question 3

Deferred tax assets and liabilities are classified as on the balance sheet ?

Answer 3

Noncurrent

Question 4

Can the interest expense in a self-constructed asset be capitalized?

Answer 4

Yes to the extent interest is actually paid, subject to certain rules

Question 5

How do GAAP and IFRS differ in reclassify current liabilities as non-current ?

Answer 5

GAAP requires only the intent and ability to arrange for long term refinancing

IFRS
Requires an actual refinancing agreement in place at balance sheet date

Question 6

How is inventory recorded under gross method and net method?

Answer 6

Gross method - inventory is recorded at the price and only discounts taken are recognized

Net Method- all discounts will be taken and any forfeited discounts are recognized as expense

Question 7

A loss contingency is accrued and disclosed when?

Answer 7

When both probable and estimable

Question 8

When are gain contingencies accrued?

Answer 8

Never accrued but may be disclosed

Question 9

Rent collected 8 months in advance is a ?

Answer 9

Considered unearned revenue

And a current liability since it will be earned within a year

Question 10

When it is considered imminent that a company is no longer a going concern and need to liquidate its assets
Under liquidation Basis of Accounting the assets should be valued at ?

Answer 10

Amount expected to be generated upon Liquidation