Section 13 - Liabilities

Question 1

What is Current Liabilities valued at?

Answer 1

NRV or settlement value

Question 2

What are the two methods to record a liability?

Answer 2

1) Gross method - purchase are shown at gross, if discount is taken, it is considered a reduction to Cost of Sales
2) Net method - purchases are show at net, if discount is not taken, considered interest expense

Question 3

What is an Accrued Liabilities/Expense?

Answer 3

An expense that is incurred but not yet paid in cash.

A current liability.

Example: unpaid salaries or taxes at year end

Expense (I/S)
   Accrued Liability (B/S, ie Salaries Payable)

Accrued Liability
Cash

Question 4

What is a Prepaid Expenses?

Answer 4

Expenses paid in cash, but not yet incurred.

Current Asset

Example: Prepaid rent

Prepaid Expense (asset)
   Cash

Expense (I/S)
Prepaid Expense

Question 5

What is a Deferred Revenues?

Answer 5

Revenue collected but not yet earned.

Current liability

Example: rent collected or subscriptions collected in advance, gift certificates issued but not yet redeemed

Cash
   Unearned Revenue (B/S)

Unearned Revenue (B/S)
   Revenue (I/S)

Question 6

What is Revenue Receivable?

Answer 6

Revenue earned but not yet collected.

Current Asset

Example: revenue earned but still due from customer

Receivable
Revenue (I/S)

Cash
Receivable

Question 7

What are the steps to determine the estimated liability for unredeemed coupons?

Answer 7

1) Determine Face Value
2) Add handling fee % promised to merchant
3) Multiply by the % of coupons expected to be redeemed
4) Subtract payments already made to merchants for redeemed coupons.

Question 8

What accounting principles does “Compensated Absences” take into consideration?

Answer 8

Matching

Faithfully Represented (Neutrality)

Question 9

How are Loss Contingencies disclose and accrue?

Answer 9

• Remote - SLIGHT chance of occuring
  
  • Don’t disclose
  • Don’t accrue
• Reasonably Possible - More than Remote, less than Probably
  
  • Do disclose
  • Don’t accrue
• Probably - LIKELY to occur
  
  • If not estimable
    
    • Do disclose
    • Don’t accrue
  • If estimable
    
    • Do disclose
    • Do accrue (conservatism and matching)

Question 10

How are Gain Contingencies disclose and accrue?

Answer 10

Cannot accrue due to conservatism (only accrue if you have $$ in hand)

Remote - no disclose and no accrue
Reasonably possible - yes disclose, no accrue
Probable & estimable - yes disclose, no accrue

Question 11

How are Subsequent Events for Loss/Gain Contingencies disclose and accrue?

Answer 11

Type I - Condition existed at B/S date
-Accrue and disclose

Type II - Condition did not exist at B/S date
-Disclose but not accrue

Question 12

What are Notes Payable recorded at?

Answer 12

Face Value

Question 13

What are long-term payable recorded at?

Answer 13

Present Value

Question 14

What must be present for short-term liability expected to be refinanced to be reported as noncurrent liability (long term)?

Answer 14

Intent and ability

Question 15

Under IFRS, what must exist before an entity’s short-term obligations can be classified as long-term?

Answer 15

An AGREEMENT to refinanced into long-term

Question 16

Under IFRS, what is contingency and provision?

Answer 16

Contingency is a potential liability that DOES NOT need to be recognize on the B/S

Provision is a potential liability that DOES need to be recognize on the B/S

Question 17

Under IFRS, are contingent gains required to be disclosed if probable?

Answer 17

YES