LIABILITIES

Question 1

Name the four current and non-current liabilities in SFP.

Answer 1

1. Payables
2. Interest bearing
3. Tax liabilities
4. Provisions

Question 2

What is a provision?

Answer 2

A provision is a liability of UNCERTAIN timing or amount.

Question 3

What is the definition of a liability?

Answer 3

A liability is a PRESENT OBLIGATION arising from PAST EVENTS. The SETTLEMENT of which is expected to result in an OUTFLOW of resources embodying future economic benefits.
RECOGNITION CRITERIA:
1. PROBABLE that FEB’s will flow from the entity
2. Cost or value can be measured with RELIABILITY

Question 4

What is an obligating event?

Answer 4

Creates a legal or constructive obligation that results in no realistic alternative to settling the obligation.

Question 5

What is a legal obligation?

Answer 5

Derives from a CONTRACT, LEGISLATION, or other operation of the law.

Question 6

What is a constructive obligation?

Answer 6

Derives from an entities ACTIONS where:

1. PATTERN of past practice, published policies or a sufficiently specific current statement has indicated to other parties that it will accept certain responsibilities; AND…
2. Entity has created a valid expectation on the part of other parties that it will discharge those responsibilities

Question 7

What is a contingent liability?

Answer 7

A) a POSSIBLE obligation that arises from past events. Existence confirmed only by occurrence/non-occurrence of one or more UNCERTAIN future events
- POSSIBLE: fails to meet framework definition of liability. No PRESENT obligation.
OR…
- present obligation but cannot measure reliably.

Question 8

What is an ONEROUS contract?

Answer 8

UNAVOIDABLE costs of meeting obligations under the contract EXCEED the economic benefits expected to be received under it.

Question 9

Under Para 14. A provision shall be recognised when…

Answer 9

1. Entity has a PRESENT OBLIGATION as a result of a past event
2. It is PROBABLE
3. A reliable estimate can be made of the obligation amount.

Dr EXPENSE
Cr PROVISION FOR…

Question 10

When will an entity have a PRESENT OBLIGATION?

Answer 10

Paragraph 15:
- some times it is not clear… Past event will give rise to a present obligation when it is MORE LIKELY THAN NOT that a present obligation exists at the end of the period.

Question 11

Define a past event.

Answer 11

Paragraph 17:

• a past event that leads to a present obligation is known as an OBLIGATING EVENT. For an event to be obligating, the entity must have no alternative to settling the obligation.
  a) where settlement can be enforced by law
  b) where the event creates VALID EXPECTATIONS