Chapter 13 3361.docx

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Management and Organizational Studies
Management and Organizational Studies 3361A/B

MOS 3360: Chapter 13: Non- Financial and Current Liabilities Liability present economic obligation for which the entity is the obligor Liabilities have 3 Essential Characteristics: 1.) They exist at the present time 2.) They represent economic obligations 3.) Obligations are enforceable Under ASPE and IFRS a financial liability is any liability that is a contractual obligation to: 1.) Deliver cash or other assets to another entity OR 2.) Exchange financial assets or liabilities with another entity under conditions that are potentially unfavorable to the entity -Financial liabilities are recognized initially at their fair value. -After acquisition they are accounted for at their amortized cost -Transaction costs that are a direct result of the issue of the liability are netted against its original fair value Non- Financial Liabilities -Are measured initially and at each subsequent dates at the best estimate of the amount the entity would rationally pay at B/S date to settle obligation. Current Liability Under IFRS a current liability is: -expected to be settled in the entity’s normal operating cycle -held primarily for trading -due within 12 months from the end of the reporting period -entity doesn’t have unconditional right to defer its settlement for at least 12 months after B/S date Examples of Current Liabilities: Bank Indebetedness, A/P, Notes Payable (Interest bearing and non-interest bearing) Interest Bearing Note Issued: Issued: Cash Dr. Notes Payable Cr. Interest: Interest Expense Dr. Interest Payable Cr. End of Note and Interest: Notes Payable Dr. Interest Payable Dr. Cash Cr. Zero Interest Bearing Note: -The interest is included in the face amount -The interest is the difference between amount of cash received when the note is signed and the higher face amount that is payable at maturity -Borrower receives notes present value in cash and pays back the larger maturity value Calculation Present Value:** Initially: Cash Dr. Notes Payable Cr. (Present Value amount, not face amount) Interest: Interest Expense Dr. (Difference between face value and present value) Notes Payable Cr. End of Note Notes Payable Dr. Cash Cr. Current maturities of long-term
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