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ADMS 3595 (10)

Chapter 13 Non-Financial and Current Liabilities.docx

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Administrative Studies
ADMS 3595
Shaweta Roopra

ADMS 3595.A Lecture #1 September 10, 2013 1 of 4 Chapter 13 Non-Financial and Current Liabilities * if the company not paying interest within one year, then the interests payable becomes long-term liabilities 1. Liability Notes Payable Example • An obligation of an enterprise • Arising from past transactions or events • Interest-Bearing • The settlement of which may result in the transfer or use of assets, provision of services, or other • Zero-Interest-Bearing • Interest = the difference between the present value yielding of economic benefits in the future of the note and the face value of the note • The interest expense is recorded over the life of the 2. What are included in liabilities? note Current liabilities --- within one year Lone-term liabilities --- more than one year • e.g. $100,000, 4-month, 0% note on March 1 PV of cash received is $96,154 @ bank discount rate 3. Financial Liabilities 12% Method I Financial liability is any liability that is a contractual obligation to either: March 1 Dr Cash 96,154 Cr Notes Payable 96,154 • deliver cash or other financial assets to another party, or June 30 Dr Interest Expense 3,846 • to exchange financial instruments with another party under conditions that are potentially Cr Notes Payable 3,846 unfavourable Method II 4. Financial vs. Non-Financial Liabilities March 1 Dr Cash 96,154 Dr Discount on Notes Payable 3,846 Financial Non-Financial • Initially measured at • ASPE: no specific Cr Notes Payable 10,000 fair value measurement standards • Subsequent (measurement varies June 30 Dr Interest Expense 3,846 measurement generally based on nature of Cr Discounts on Notes Payable 3,846 at amortized cost liability) (except those held for • IFRS: measured at best * If not tell the year-end date, both methods are ok. If trading, such as estimate of payment that derivatives, where fair would be required to tell the year-end date, use Method II. value is used) settle the obligation at 7. Long-term Debt the date of the statement of financial position • The portion of long-term debt maturing within 12 months from the date of the statement of 5. Accounts Payable --- short term financial position is reported as a current liability e.g. buy $10,000 goods in credit • Portions of long-term debts should not be reported Dr. Inventory 10,000 as current liabilities if, by contract, they are retired Cr. Accounts Payable 10,000 by assets not classified as current assets • Any liability due on demand, or due on demand 6. Notes Payable within a year or operating cycle, is reported as a • Notes payable may be classified as either current current liability or long-term • Notes payable may be interest-bearing or zero- e.g. Jan.1/2013 Loan for $1M, equal annual payment interest-bearing (non-interest-bearing) for 10 years e.g. Jan.1/2013 borrows $10,000 to company A Dec.31/2013 Dec.31/2015 interests rate @ 5% annual payment $100,000 will be paid out ($1,000,000/10yr) Dec.31/2013  remain $900,000 $100,000 becomes current Dr. Interest Expense 500 $800,000 remains as long-term Cr. Interest Payable 500 Treat as current liability in balance sheet ADMS 3595.A Lecture #1 September 10, 2013 2 of 4 Dec.31/2014 • Tenants in shopping centres may be required to $100,000 will be paid out ($1,000,000/10yr) pay additional rents based on sales  remain $800,000 $100,000 becomes current $700,000 remains as long-term 11. Taxes Payable * Always credit current portion until write off • Sales Tax • Goods and Services Tax (GST) 8. Short-Term Debt Expected to be Refinanced • Income Tax • IFRS has more stringent rules than ASPE • Under IFRS, debt due within 12 months is 12. Employee-Related Liabilities – usually current classified as current, unless at the date of the liabilities statement of financial position the company has • Salaries or wages owed to employees at end of the the intent and a right (under existing contract, accounting period and solely in its discretion) to refinance with long- • Payroll deductions owed to CRA and others term debt • Short-term compensated absences • Under ASPE, currently maturing debt can be • Profit-sharing and bonuses classified as long-term if there is irrefutable evidence when the financial statements are e.g. wage: $1,000 for 2 weeks completed that the debt has been or will be Dec.10/2013 Dec.24/2013 Jan.7/2014 converted to long-term debt -1,000 -1,000 Dec.31/2013 e.g. Jan.1/2013 Loan $100,000 payable on need to accrue for $500 Dec.31/2014 (2yr loan) (1,000*5/10) On Dec.31/2013, this loan becomes current liability 13. Short-Term Compensated Absences * If the company going to pay the loan within one year, then treat as current. • Compensated absences are absences from employment for which employees are paid 2012 2013 2013 2014 • There are two main types: Long- – Accumulating term - 100,000 100,000must have closure • Employee rights accruing with employee if there is a penalty, it needs service (e.g. vacation and statutory holidays) to explain to be shown here. • Expense and liability recognized as earned by employees 9. Dividends Payable – Non-accumulating • Cash Dividend • Employee rights based on occurrence of – Becomes legal obligation on declaratio
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