CHAPTER 5 IN CLASS NOTE

CURRENT LIABILITIES IAS 01

Slide 4: IAS 1, Presentation of Financial Statements:
• Requires liabilities to be classified as current (short-term) or non-current (long-term)
• Current liabilities:
– Expects to settle in its normal business cycle
– Holds primarily for the purpose of trading
– Expects to settle within 12 months of the balance sheet date
– Does not have the right to defer until 12 months after the balance sheet date
Slide 5 Classification and accounting for current liabilities under IFRS is similar to US GAAP,
but there are still differences relate to:
• Refinanced short-term debt– Under IFRS, may be reclassified as long-term debt only if
refinancing is completed prior to the balance sheet date. Under U.S. GAAP, a
refinancing agreement must be reached, but the refinancing need not be completed by
the balance sheet date -> IFRS thận trọng hơn
• Accounts payable on demand due to violation of debt covenants—must be current unless
lender issues waiver of at least 12 months by balance sheet date. The waiver must be
obtained, under U.S. GAAP, by annual report issuance date.
Balance sheet date 31/12 -> annual report issuance date (90 days after balance sheet
date)
• Bank overdrafts—IFRS: netted against cash if the overdrafts form an integral part of cash
management—otherwise current liabilities. Under U.S. GAAP, bank overdrafts are
always classified as current liabilities.

PROVISIONS, CONTINGENT LIABILITIES, AND CONTINGENT ASSETS – IAS 37

Slide 6 Provisions Dự phòng
• A provision is a liability of uncertain timing or amount.
• A liability is a present obligation to transfer an economic resource as a result of past
event.
• A provision should be recognized when ALL 3 recognition criteria are satisfied:
– An entity has a present obligation (legal or constructive) as a result of a past event.
– It is probable (more likely than not) that an outflow of economic resources will be
required to settle the obligation. (IFRS Probable >50%, US GAAP >70%)
– A reliable estimate can be made of the amount of the obligation.

Slide 7: An obligation can be legal or constructive:

– A legal obligation derives from a contract or legislation.
– A constructive obligation derives from the actions of an entity where:
• An established pattern of past practice, published policies or a specific statement has
indicated to other parties that the entity will accept certain responsibilities
• The entity has created a valid expectation on the part of those other parties that it will
discharge those responsibilities
Example: Công ty bán điện thoại kèm theo cam kết bảo hành miễn phí trong vòng 1 năm
IFRS: legal or constructive obligation
US GAAP: not mention about constructive obligation
Slide 8 : A contingent liability is:
• A possible obligation that arises from past events whose existence will be confirmed only
by the occurrence of one or more future events not wholly within the control of the entity;
or (20% đến dưới 50%)
• A present obligation that arises from past events but which is not recognized because:
– It is not probable that an outflow of economic benefits will be required to settle the
obligation; or
– The amount of the obligation cannot be measured with significant reliability.
• Contingent liabilities are not liabilities and are not recognized in the FSs. They are
disclosed in the notes, unless the possibility of resource outflow is remote (dưới
20%).

Slide 9: Example: Litigation provision

Former employees of Dreams Unlimited Inc. filed a lawsuit against the company in Year 1 for
alleged age discrimination. At December 31, Year 1, external legal counsel provided an opinion
that it was 60% probable that the company would be found liable, which would result in a total
payment to the former employees between $1,000,000 and $1,500,000, with all amounts in that
range being equally likely.
IFRS
60% probable
Dr Ligitation loss (expense) (1,000,000+1,500,000)/2 = 1,250,000
Cr Provision for litigation loss 1,250,000
US GAAP
60% is not probable -> no provision but disclose info in the Notes to FS
*Nếu đc trích lập provision theo US GAAP, thì ghi nhận 1,000,000

Slide 10: Onerous Contract

• An onerous contract is a contract in which the unavoidable costs of meeting the
obligation of the contract exceed the economic benefits expected to be received from it
• If onerous from entity's own action--no recognition until that action happens.
• Where an onerous contract exists, the entity should provide for the net loss which is the
lower of cost of fulfillment or penalty from non-fulfillment.

Slide 11 Example: Delicious Chocolate Company produces chocolate candies. It has a

noncancelable lease on a building in Ridgeway, South Carolina, that it uses for production. The
lease expires on December 31, Year 2, and is classified as an operating lease for accounting
purposes. The annual lease payment is $120,000. In October, Year 1, the company closed its
South Carolina facility and moved production to Mexico. The company does not believe it will
be possible to sublease the building located in South Carolina. Because there is no future
economic benefit expected from the lease, it is an onerous contract.
(1) Is there a present obligation at the year end of 31 Dec Year 1? Yes
(2) What will appear in respect of the contract in financial statements for the year ended 31
Dec Year 1?

Dr Lease expense 120,000

 Cr Provision for lease payment 120,000

Slide 13: Contingent Assets

• A contingent assets is a probable asset arising from past events whose existence will be
confirmed by occurrence or non-occurrence of future event.
• Don’t recognize—disclose when probable in flow of economic benefits.
• Recognize as asset when virtually certain.
Example Company ABC win a lawsuit and there is a decision for receiving $1 million.
Company ABC can record “a receivable” according to IFRS
• Earlier recognition of contingent asset and related gain than U.S. GAAP, which generally
requires realization before recognition.
Example Company ABC win a lawsuit and there is a decision for receiving $1 million.
US GAAP, when collect cash, record Dr Cash and Cr Income

Probabilit Economic resource inflow Economic resource outflow

y (Asset) (Liability)

Virtually Recognize assets (receivable) Provision for libiality (in Balance

certain sheet)

Probable Not at asset Provision for libiality (in Balance

Disclose in Notes to FS sheet)
Possible Not to disclose in Notes Not a provision for libiality (in
Balance sheet) but disclose in Notes
to FS
Remote Not to disclose in Notes Not a provision
Not to disclose in Notes

REVENUE RECOGNITION IFRS 15

Slide 16:17: 5 Steps model in the recognition of revenue:
1. Identify the contract with a customer:
A contract is within the scope of IFRS 15 only when:
- Written, verbal or implied contract: For example: food order in a restaurant
- Contract must be approved => signed
- Commercial substance: some gain or loss.
- Payment term and each party right can be identified
- Probable that the entity will collect the economic benefit
2. Identify the separate performance obligations (PO) in the contract.
A performance obligation is a promise in a contract with a customer to transfer a good or
service to the customer.
The entity must evaluate all of promised goods and services to determine whether they are
separte POs?
3. Determine the transaction price
Transaction price: The amount of consideration to which an entity expects to be entitled in
exchange for transferring promised goods or services to a customer, excluding amounts
collected on behalf of third parties.
Note:
1. Discount to present value if material
2. If consideration include variable or contingent consideration, the transaction price should be
determined using expected value.
4. Allocate the transaction price to each separate PO.
Transaction price should be allocated to all separate POs in proportion to the standard-alone
selling price of the goods or service underlying each PO.
5. Recognize the revenue allocated to each performance obligation when the entity satisfies
each POs.

Example:
Eg. FPT has a financial year end 31 March. On 1 Jan, they secured a contract with a
multinational bank to supply smart phone to many employees of the bank and give them one
year of unlimited access to the network. The contract price per unit is $432 per unit. This is
payable in full 30 days after the contract commences. At the end of the contract, the phone will
not be returned. The company normally charges a monthly fee of $20 per month per unit for
unlimited access to the network and $240 for a smart phone.

1. Contract under IFRS 15: Written contract

2. Xác định các PO: 2PO
- PO1: cung cấp phone
- PO2: Network for 12 months
3. Contract price = $432
4. Phân bổ giá trị hợp đồng $432 cho mỗi PO
Phone = (240/480) x 432 =216
Network in 12 months = 216 -> month = 18
Information:
Stand alone price
Net work $20 x 12 months = $240
Phone $240
Total $480
5. Ghi nhận doanh thu khi mỗi PO được thực hiện
PO1 cung cấp phone: ghi nhận doanh thu ngay khi bàn giao điện thoại cho khách hàng (khi ký
hợp đồng bàn giao điện thoại luôn)

Dr Trade Receivable 432

Cr Sales revenue (phone) 216
Cr Deferred Income (Unearned revenue) 216 – Doanh thu chưa thực hiện

Khi KH thanh toán (30 ngày sau khi ký hợp đồng)

Dr Cash 432
Cr Trade receivable 432

PO2 network: record monthly

End of first month
Dr Deferred Income (Unearned revenue) 18
Cr Service revenue (network) 18

P17 homework

Year 1 No provision

Year 2 60% probable

Dr Litigation loss 1,000 cases x ($1,000 +$5000) / 2 = 3,000,000

Cr Provision for Litigation 3,000,0000

Year 3 80% probable

Cần có provision = 1,000 cases x ($2,000 +$7,000) / 2 = 4,500,000

Provision for Litigation

Bal Y2 = 3,000,000
1,500,000
Bal Y3=4,500,000

Dr Litigation loss 1,500,0000

Cr Provision for Litigation 1,500,000

Year 4

Payment $1.2 million for 400 case

Dr Provision for Litigation 1,200,000

Cr Cash 1,200,000

Provision for remaining 600 cases = 180 cases x $3,000 + 300 cases x $5000 + 120 cases x
$10,000 = 3,240,000

Provision for Litigation

Bal Y3 = 4,500,000
1,200,000 payment
60,000
 Bal Y4 = 3,240,000

Hoàn nhập dự phòng

Dr Provision for Litigation 60,000
Cr Reversal for litigation loss (income) 60,000