Section 2.8 Flashcards
what are current liabilities?
liabilities falling due within one year
What are the main types of current liabilities
- Loan capital with less than one year to redemption
- Bank loans with less than one year to repayment
- Payments received on an account
- Trade payables
- Bills of exchange payable plus commercial paper
- Accruals and deferred income
- Other trade payables, including taxation and social security
what are accruals?
amounts owing for services already partly received.
What is deferred income
money received by, or due to the company but not yeat earned
what are trade payables
other businesses or people owed money for goods or services supplied
what is a provision?
An amount charged against profit (i.e. treated as an expense) to record a reduction in the value of an asset - even if the exact fall in value is uncertain
what are the three types of provisions?
- Provision for doubtful debts
- Provisions for depreciation
- Provisions for unrealised profit on stock
what is a contingent liability?
Is a potential liability that had not come into existence by the time the balance sheet was compiled.
How does UK GAAP and IAS both deal with contingent liabilities?
Are regarded as not sufficiently predictable to warrant specific provision in the accounts.
However, a company has to reveal by way of a note to the accounts, or otherwise any charge on the assets of the company used to secure the liabilities of any other person; any arrears or cumulative dividends; and the legal nature and particulars of any other contingent liabilities
give e.g.’s of contingent liabilities
- potential liabilities on claims against the company e.g. by court action
- goods sold under warranty or guarantee
- guarantees given to banks
- bills of exchange discounted with bankers
What is the basic principle of IAS 19 the standard for DB pension costs?
the cost of providing employee benefits should be recognised in the period in which the employee earns the benefit, rather than when it is paid or payable.
The amount recognised on the balance sheet should be the present value of the DB obligation.
When will the balance sheet of the company show a liability?
In cases when the pension plan is in a net deficit position (plan assets less than the PV of expected future payments)
When will the balance sheet of the company show as an asset?
When the plan is in a net surplus position (plan assets are greater than expected future payments)
What are some of the main features of the IAS standard for DB pension costs?
- Pension scheme assets are measured using market values
- Pension scheme liabilities are measured using a projected unit method and discounted at an AA corporate bond rate
What is a post-balance sheet event?
events occurring between the balance sheet data and the date the accounts are approved by the board of directors.
What are the two types of post balance sheet event?
Adjusting events
Non-adjusting event
What is an adjusting event?
relate to the emergence of additional evidence of conditions existing at the balance sheet date, such as the insolvency of a debtor.
In these cases the accounts should be adjusted accordingly
What is a non-adjusting event?
Events arising after the balance sheet date but before the accounts are approved such as major acquisition or disposal.
These events should be disclosed if they are considered to be of such importance that non-disclosure would affect the ability of users of the accounts to make proper evaluations
