Podcast Beta
Questions and Answers
A contingent liability is a present obligation that is probable and can be reliably measured.
False
Provisions are recognized when payment is probable and the amount can be estimated reliably.
True
When measuring provisions, the amount is always estimated at the historical cost of the liability.
False
Contingent assets are certain obligations that the company can confirm.
Signup and view all the answers
Provisions require review and adjustment at each balance sheet date.
Signup and view all the answers
Dividends in arrears on cumulative preference shares are disclosed as a liability.
Signup and view all the answers
Customer loyalty awards are always reported as selling expenses.
Signup and view all the answers
All unearned revenues are considered as current liabilities.
Signup and view all the answers
Premiums as components of transaction price can be split between current and non-current liabilities.
Signup and view all the answers
VAT payable is always recognized as a long-term liability.
Signup and view all the answers
Deposits and advances are treated solely as current liabilities.
Signup and view all the answers
The reconciliation for each class of provision does not require a prior year reconciliation.
Signup and view all the answers
Gift certificates outstanding are considered a form of current asset.
Signup and view all the answers
Study Notes
Current Liabilities
- Short-term financial obligations due within one year or a normal operating cycle.
- Three characteristics: present obligation from past events, resulting in resource outflow.
Provisions
- Liabilities of uncertain timing or amount.
- Present obligation from a past event, probable payment, and reliably estimable amount.
- Measured as the best estimate of expenditure needed to settle the obligation at the balance sheet date.
- Consider one-off events and large populations of events.
- Uses discounted present value with a pre-tax discount rate reflecting time value of money and specific liability risks.
Remeasurement of Provisions
- Reviewed and adjusted at each balance sheet date.
- Reversed if outflow is no longer probable.
Contingent Liabilities
- Possible obligations dependent on uncertain future events outside the entity's control.
Examples of Provisions
- Environmental clean-up.
- Damages.
- Warranties.
- Bonuses.
- VAT payable.
- Payroll taxes (SSS, Pag-IBIG, PhilHealth, WTax).
- Discount vouchers, coupons, and customer loyalty awards.
- Premiums (as component of transaction price or selling expense).
- Unearned revenues (collection in advance vs. performance obligation satisfaction).
- Gift certificates outstanding.
- Dividends payable (cash, undeclared, arrears, property/scrip, share).
- Deposits and advances.
Financial Statement Presentation
- Assets and liabilities classified as current and non-current (excluding liquidity).
- Current liabilities defined by normal operating cycle, traded nature, within 12 months, or lack of unconditional deferral right for at least 12 months.
- Warranties, dividends, and deposits/advances may be split between current and non-current.
Disclosure Requirements
- Reconciliation for each provision class: opening balance, additions, usage, reversals, discount unwinding/rate changes, and closing balance.
- Prior-year reconciliation not required.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Explore the nuances of current liabilities, provisions, and contingent liabilities within financial accounting. This quiz will test your understanding of key concepts, including how obligations are measured and assessed. Use real-world examples to solidify your knowledge of financial obligations.
