ACC 105

(INTERMEDIATE
ACCOUNTING 2)
Sharon Faith P. Serra-Sumbrana, CPA, CTT, LPT
Glan Institute of Technology | Academic Year 2024-2025
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OVERVIEW
Chapter 1. Liabilities Chapter 13. Direct Financing Lease - Lessor
Chapter 2. Premium Liability Chapter 14. Sales Type Lease - Lessor
Chapter 3. Warranty Liability Chapter 15. Sale and Leaseback
Chapter 4. Contingent Liability Chapter 16. Accounting for Income Tax
Chapter 5. Bonds Payable Chapter 17. Post Employment Benefits
Chapter 6. Effective Interest Method Chapter 18. Defined Benefit Plan
Chapter 7. Compound Financial Instrument Chapter 19. Other Employee Benefits
Chapter 8. Note Payable Chapter 20-21. Shareholders’ Equity
Chapter 9. Debt Restructure Chapter 22-23. Retained Earnings
Chapter 10-11. Lessee Accounting Chapter 24-25. Share-Based Compensation
Chapter 12. Operating Lease - Lessor
SSS | A.Y 2024- 2025
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LIABILITIES
Objectives:
1. To understand the concept of Liabilities
2. To define and know the measurement of
current and noncurrent liabilities
3. To explain the treatment of long-term
debt falling due within one year

SSS | A.Y 2024- 2025

LIABILITIES
are present obligations of an entity to transfer an economic
resource as a result of past events.

Essential Characteristics:
The entity has a present obligation
The obligation is to transfer an economic resource
The liability arises from a past event
CURRENT LIABILITIES
Measurement:

Conceptually, all liabilities are initially measured at

Present Value and subsequently measured at Amortized Cost.
In practice, Current Liabilities or short-term obligations are not
discounted anymore but measured and reported at Face Amount.
CURRENT LIABILITIES
PAS 1, paragraph 69, as amended provides that an entity shall classify a
liability as current when:
The entity expects to settle the liability within the entity’s operating
cycle.
If not clearly identifiable - Assumed to be 12 months
The entity holds the liability primarily for the purpose of trading.
The liability is due to be settled within 12 months after the
reporting period.
Examples: Financial Liabilities held for trading, bank overdraft, dividends payable, income tax
payable, other nontrade payables due w/in 1 year and current portion of noncurrent FL.
The entity does not have the right at the end of the reporting
period to defer settlement of the liability for at least 12 months after
the reporting period.
COVENANTS
are often attached to borrowing agreements which represent undertakings by the
borrower.

BREACH OF COVENANTS
The liability becomes payable on demand.
The liability is classified as current.
However, the liability is classified as noncurrent if the lender has agreed on or before
the end of the reporting period to provide a grace period ending at least 12 months
after the end of reporting period.
PRESENTATION OF CURRENT LIABILITIES
Under Paragraph 54 of PAS 1, as a minimum, the face of the statement of
Financial Position shall include the following line items for current liabilities:
1. Trade and Other Payables
2. Current Provisions
3. Short-term Borrowing
4. Current Portion of long-term debt
5. Current Tax Liability
ESTIMATED LIABILITIES
are obligations which exist at the end of the reporting period although their amount
is not definite.

DEFERRED REVENUE
or “Unearned Revenue” is income already received but not yet earned.
It may be realizable w/in 1 year or more, after the end of the reporting period.
If realizable w/in 1 year, it is a Current Liability
(Examples: Unearned Interest Income, Unearned Rental Income, Unearned Subscription Revenue)
If realizable in more than 1 year, it is classified as Noncurrent Liability
(Examples: Unearned revenue from long-term service contracts and long-term leasehold advances)
NONCURRENT LIABILITIES
Measurement:
Bonds Payable and Noninterest-bearing Note Payable
- Initially Measured at Present Value
- Subsequently Measured at Face Amount
Long-term note payable is interest bearing
- Initially and Subsequently measured at Face Amount
- Face amount = Present Value of NP
NONCURRENT LIABILITIES
All liabilities not classified as current are classified as
noncurrent liabilities.
1. Noncurrent portion of long-term debt
2. Finance Lease Liability
3. Deferred Tax Liability
4. Long-term Obligation to Officers
5. Long-term deferred revenue
 LIABILITY

LIABILITY

LIABILITY

LIABILITY

LIABILITY

LIABILITY

LIABILITY

LIABILITY

LIABILITY

LIABILITY
3,700,000
14,100,000
C. 3,900,000
D. 130,000
C. 800,000
BONUS COMPUTATION
1. Before Bonus and Before Tax
2. After Bonus but Before Tax
3. After Bonus and After Tax
4. After Tax but Before Bonus
5,000,000
10 %
30 %

5,000,000
10 %

500,000
 5,000,000
10 %
30 %

5,000,000
500,000
500,000
500,000
500,000
454,545

5,000,000
454,545
4,545,455

454,545
 5,000,000
10 %
30 %

5,000,000
5,000,000
5,000,000 5,000,000
5,000,000 1,500,000
500,000 150,000
500,000 150,000
350,000
350,000
327,103
5,000,000 327,103
1,401,869

5,000,000
327,103
1,401,869
3,271,028

327,103
 5,000,000
10 %
30 %

5,000,000
5,000,000
5,000,000 5,000,000
5,000,000 1,500,000
500,000 150,000
500,000 150,000
350,000
350,000
360,825

5,000,000
5,000,000 360,825 1,391,753
3,608,247

360,825
ASSIGNMENT:
1. Review Chapter 1 - Liabilities
2. Study in Advance:
a. Chapter 2 - Premium Liability
b. Chapter 3 - Warranty Liability