ACCT10002 Lecture Notes - Lecture 7: Trade Union, Asteroid Family, Book Value
19 Jun 2018
School
Department
Course
Professor
Introductory Financial Accounting
Lecture 7- Liabilities
Definition
A liability is a present obligation of the entity, arising from past events, the settlement of which is expected
to result in an outflow from the entity of recourses embodying economic benefits.
Present Obligation
May be legally enforceable and can arise from normal courses of business. However does not have to be
legal but must be a current obligation.
Constructive obligation- an obligation which derives from an entity’s action where:
a. It has indicated to another party that it will accept certain responsibilities
b. The entity has created a valid expectation on part of another party to discharge those obligations.
Current liability- an obligation that can be reasonably expected to be paid within one year or one period,
whichever is longer. All other liabilities are non-current.
Payroll and Payroll Deductions payable
Employers deduct certain amounts from employees’ salaries if they are required to be paid to other
parties.
E.g. Tax (PAYG), Superannuation, Trade union fees, Health insurance
Employers are responsible to forward these withheld funds to the appropriate parties.
Revenues received in advance
Occur when customers pay in advance of receiving a good or service. Revenue is recognised when the
obligation ceases.
Notes Payable (Bank Bills)
Record obligations in the form of written agreement (securities). The borrower pays interest (borrowing
cost). Frequently issued to meet short-term financing needs and issued with varying terms to maturity.
Provisions and Other Liabilities
Provisions are able to be distinguished from other liabilities because there is a level of uncertainty about
the timing or amount of the future expenditure required in settlement.
Accruals are often reported as part of trade and other payables, whereas provisions are reported
separately.
Provisions are liabilities for which the amount of and timing of the future sacrifice is still uncertain. Have a
significant level of uncertainty.
E.g. provision for long service leave, warranty, repairs and maintenance.
DR. Expense account; CR. Provision account
Provisions will be recognised when the entity has a) a present obligation as a result of a past event, b) a
probable outflow of resources and c) a reliable estimate of the amount of the obligation.
Provisions: Warranty
A warranty is an obligation to pay the supplier of the goods or services to the purchaser that the product
will be functional. A lot of uncertainty because it is conditional upon the customer making a claim and the
costs of the claim depend on the nature of the fault.
Non-Current Liabilities
Obligations expected to be paid after 1 year or outside the normal operating cycle.
E.g. Bank loans, Long-term notes
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
A liability is a present obligation of the entity, arising from past events, the settlement of which is expected to result in an outflow from the entity of recourses embodying economic benefits. May be legally enforceable and can arise from normal courses of business. However does not have to be legal but must be a current obligation. Constructive obligation- an obligation which derives from an entity"s action where: It has indicated to another party that it will accept certain responsibilities a: the entity has created a valid expectation on part of another party to discharge those obligations. Current liability- an obligation that can be reasonably expected to be paid within one year or one period, whichever is longer. Employers deduct certain amounts from employees" salaries if they are required to be paid to other parties. Tax (payg), superannuation, trade union fees, health insurance. Employers are responsible to forward these withheld funds to the appropriate parties.
