Liabilities Flashcards
What is a liability?
A liability is a present OBLIGATION to transfer an economic resource as a result of past events
An obligation can either be legal or conventional
T or F
F. An obligation can either be legal or constructive
What is an obligation?
An obligation is a duty or responsibility that the entity has no practical means to avoid
It is a type of obligation that is a result of past practices, policies… Etc?
Constructive obligation
A type of obligation that arises from contracts, legislation and other operations of law?
Legal Obligation
It is not necessary to know the identity of the one who owed the liability as long as the identity of the creditor is known
It is not necessary to know the identity of the creditor (the one with the right to demand) but it is necessary to know the identity of the person who owed.
Statement 1 is true
Statement 2 is true
None is true
Statement 2 is true
For a liability to be recognized, it is essential that the potential of economic transfer is high.
T or F
False. A liability can still be recognized as such even if the potential to transfer economic resource is uncertain or low
What does it mean when we say transfer of economic resources?
A. Transfer of shares and other equity instruments
B. Transfer of cash or rendering services
C. Transfer of rights to own a liability.
B
There a liability when you transfer cash dividends
There is a liability when you transfer share dividends
Which statement is true?
Statement 1 is true
For an obligation to exist as a result of a past event the following must happen EXCEPT:
A. The entity has already obtained the benefit
B. The entity has already taken an action
C. The entity will or may have to transfer an economic resources which would not otherwise have had to transfer
D. An entity has disclosed the past event to the previous financial statements
D
Is there an obligation? Why? Why not?
Entity A intends to acquire goods in the future.
No. Intention does not constitute actual acquisition of benefits.
These are the events that causes an obligation to arise.
Obligating events
Entity B operates a nuclear power plant. In the current year, a new law was
enacted penalizing the improper disposal of toxic waste. No similar law existed
in prior years.
Is there an obligation?
No. The company has not taken an action yet that yields them to any obligation
Entity G employed Mr. Juan
Is there an obligation?
No. There is no obligation unless Mr. Juan already rendered the service that the entity have to pay his salary
Entity E obtained a loan from the bank. Repayment of the loan is due in 10-years’
time.
Is there any obligation of entity E?
Yes. Because he already received the proceed of the loan. He has the obligation to pay principal and the interest
In Concept, all liabilities are initially measured at:
A. Fair value
B. Historical cost
C. Face amount
D. Amortized cost
D
In practice, current liabilities or short term obligation are recorded and reported in
A. Face amount
B. Amortized cost
C. Faur Value
A
Current liability is measured
A. Initially at face amount, subsequently at amortized cost
B. Initially at face amount, subsequently at face amount
C. Initially at face amount, subsequently at fair value
B
Non-current liabilities are measured at
A. Initially at amortized cost, subsequently at fair value
B. Initially, at face amount, subsequently at face amount
C. Initially at present value, subsequently at amortized cost
C
Long-term interest bearing note are measured at
A. Face amount- Face amount
B. Present value- Amortized cost
C. Face amount-Net realizable value
A
For an item to be considered current liability, all of the following is true except:
A. Be expected to he settled within the normal operating cycle.
B. Held primarily for trading
C. Due to be settled within 12 months after the reporting period
D. The entity does not have the right to defer liability for at least 12 months after the reporting period
E. The entity does not have the right to defer liability for at least 12 months before the reporting period
E
The time between the acquisition of assets for processing and
their realization in cash or cash equivalents.
Operating cycle
Which of the statements is incorrect?
A. Examples of operating items are trade Payables
, some accruals for employee
and other operating costs
B. The operating items mentioned in letter A is presented as current liability even if they are expected to be settled beyond 12 months after the reporting period.
C. The operating items mentioned in letter A can only be classified as current liability if it is expected to be settled within 12 months after the reporting period.
C
Financial liabilities that are incurred with an intention to
repurchase them in the near term.
Financial liabilities held for trading
Which of the following is not an example of other current liabilities not settled as part of the normal operating cycle but are due for
settlement within 12 months after the reporting period.
- Bank Overdraft
- Dividends Payable
- Income Tax Payable
- Unearned Income expected to be earned within 12 months
after the reporting period. - Other non-trade payables due within one year after the
reporting period. - Current portion of noncurrent liabilities (long-term notes,
bonds, loans and lease liabilities)
None of the above
In refinancing, the general rule is that a currently maturing obligation is presented as ______, even if the obligation is refinanced on a long term basis after the
balance sheet date.
CURRENT
The obligation is NONCURRENT if:
A. The entity has the right, as of the balance sheet date, to roll
over the obligation on a long-term basis under an existing
loan facility.
B. The rollover on a long-term basis is completed on or before
the balance sheet date.
C. Both A and B
D. None of the above
C
