Podcast
Questions and Answers
What is the total amount of bank overdraft listed as a liability?
What is the total amount of bank overdraft listed as a liability?
What is the total amount allocated for current liabilities from the given information?
What is the total amount allocated for current liabilities from the given information?
What value represents the total trade accounts payable after accounting for the debit balance?
What value represents the total trade accounts payable after accounting for the debit balance?
Which of the following items is NOT included in the current liabilities?
Which of the following items is NOT included in the current liabilities?
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How much is the total dividends payable amounting to?
How much is the total dividends payable amounting to?
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Which statement regarding the classification of a liability after a breach of a long-term loan agreement is incorrect?
Which statement regarding the classification of a liability after a breach of a long-term loan agreement is incorrect?
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What does materiality depend on regarding omissions or misstatements in financial statements?
What does materiality depend on regarding omissions or misstatements in financial statements?
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In what rare circumstance may an entity choose to depart from a requirement of a standard?
In what rare circumstance may an entity choose to depart from a requirement of a standard?
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Which statement about the classification of liabilities due to breach on long-term loans is true?
Which statement about the classification of liabilities due to breach on long-term loans is true?
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Which criterion is NOT relevant for deciding if an omission or misstatement is material?
Which criterion is NOT relevant for deciding if an omission or misstatement is material?
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Study Notes
Current vs. Non-Current Liabilities
- If a liability becomes payable on demand because of a breach of an undertaking in a loan agreement, the liability is normally classified as current because the entity does not have an unconditional right to defer settlement for at least twelve months.
- Even if the lender agrees not to demand payment after the balance sheet date, the liability is still classified as current.
- However, if the lender agrees by the balance sheet date to provide a grace period of at least twelve months, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment, the liability is classified as non-current.
Materiality
- Materiality of an omission or misstatement depends on its size, nature, and its potential influence on economic decisions of users based on the financial statements.
Departing from a Standard or Interpretation
- In rare circumstances, an entity may depart from a requirement in a Standard or Interpretation if it is deemed to be so misleading that it conflicts with the objective of financial statements.
- The entity must disclose the departure, the reason for the departure, and the effect of the departure on the financial statements.
Current Liabilities
- Current liabilities are obligations that are expected to be settled within twelve months, and for which the entity does not have an unconditional right to defer settlement for at least twelve months.
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Examples of current liabilities:
- Bank overdraft
- Trade accounts payable
- Notes payable due within twelve months
- Interest payable
- Dividends payable
Shareholders' Equity
- Shareholders' equity represents the owners’ residual interest in the assets of the entity after deducting liabilities.
- Examples of items included in shareholders' equity:
- Share capital
- Share premium
- Retained earnings
- Revaluation surplus
- Remeasurements of the net defined benefit liability (asset)
- Cumulative net unrealized gains on fair value changes of investment in FVOCI
- Cumulative translation loss on foreign operations
- Treasury shares, at cost
Revenue Recognition
- Revenue from rendering services over an extended contractual period should be recognized by reference to the stage of completion of the transaction at the reporting date.
- Interest revenue should be recognized on a time proportion basis that does not take into account the effective yield on the asset.
- Royalty revenue should be recognized on an accrual basis in accordance with the substance of the relevant agreement.
- Dividend revenue should be recognized when the stockholder's right to receive payment is established.
Uncertain Factor in Revenue Recognition
- The most uncertain factor in revenue recognition is typically the measurability of the resource or item received by the seller.
Revenue Recognition for Service Businesses
- The proportional performance method is usually most appropriate for businesses engaged in services that require multiple activities to be performed over time.
- For example, packing, loading, transporting, and delivering freight are all inputs to a combined output specified by the customer, and revenue should be recognized as the entity progresses towards the complete satisfaction of the performance obligation.
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Description
Test your understanding of current and non-current liabilities, as well as the concept of materiality in financial reporting. This quiz covers key distinctions and principles that affect financial decision-making. Challenge yourself with practical scenarios and conceptual questions.
