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IA 2 - Notes

The document discusses liabilities, including their definition as present obligations resulting from past events that will require the transfer of economic resources. It covers the initial and subsequent measurement of liabilities, classification of current vs. non-current liabilities, and contingencies. The document also discusses premium liabilities specifically, where tangible items are given to customers from sales promotions, and the need to estimate and record this liability using the matching principle.

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Ruiz, Cherryjane
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78 views3 pages

IA 2 - Notes

The document discusses liabilities, including their definition as present obligations resulting from past events that will require the transfer of economic resources. It covers the initial and subsequent measurement of liabilities, classification of current vs. non-current liabilities, and contingencies. The document also discusses premium liabilities specifically, where tangible items are given to customers from sales promotions, and the need to estimate and record this liability using the matching principle.

Uploaded by

Ruiz, Cherryjane
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Intermediate Accounting 2

2/23/22
Liabilities
Liabilities definition:
1. present obligation- existing obligation
-there is one party to another party
2. Transfer an economic resource- assets that has the right to produce economic resource
Example: cash
3. Result of past events- transactions that arise the liability has happened already; has
obligating event
PRESENT OBLIGATION
Legal obligations- example: payment to workers
Constructive obligations- example: selling phones with warranty
Remember: Liabilites are bayronon sa company
Measurement of Liabilities
Initially measured- first time to record the liability at face value. Later on, at amortized cost.
Exemption: Current Liabilities- measured at face value because payable at a short period of
time.
Interest bearing- at the start it is clearly extinguished how much is principal, and how
much is interest.
LONG TERM DEBT CURRENTLY MATURING
PAS 1- due to be settled within 12 months after the end of the accounting period is classified as
CURRENT.
Long term debt currently maturing will be reclassified:
Example: July 1, 2020- July 1, 2023
December 31, 2020 – non current
December 31, 2021- non current
December 31, 2021 – current
Refinancing is completed after balance sheet date.
Exception of reclassification: walay refinancing agreement na complete on or before the
period
-basta naay discretion to refinance (is for a period of at least 12 months after the
reporting period.

LIABILITIES PAYABLE ON DEMAND

- Classified as CURRENT

Covenants- agreement made by the debtor and creditor


o If breached, classified as Current Liabilities.

Remember:
1. On or before
2. Within 12 months
Estimated Liabilities- cannot determine how much exactly
Contingent Liabilities- may or become a liability

Premium Liability
Promotion- activities sa business to promote the products or goods of the company
Sales promotion- objective to create urgent need on the part of the customer
Two Categories of Sales Promotion
Premiums- tangible items, goods or merchandise given to the customer
Accounting Procedures
Refer to PPT
Chapter 2: Premium Liability
Premiums- are articles of value such as toys, dishes, silverware and other goods given to
customers as a result of past sales or sales promotion activities
o Basically, an asset.
o Return of product labels, box tops, wrappers and coupons

Matching principle- expense is recorded when sales happened.


Estimated liability- are obligations which exist at the end of reporting period although their
amount is not definite.

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