RSM219H1 Chapter Notes - Chapter 9: Current Liability, Revolving Credit, Deferred Income
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RSM219H1 Full Course Notes
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Document Summary
Why the distinction between current & non-current liabilities is of significance to users. Company expects to settle it through an outflow of resources that represent future economic benefits. Obligation results from an event that has already happened. Current liabilities = settled within next 12 months. Working capital = difference between current assets & current liabilities. Users use working capital as a liquidity measure. Assessing liquidity enables users to determine whether the company will have sufficient cash & the current financial health of the company. Liabilities should be recorded at fair value or present value of payment required to settle them. Time value of money: recognise that a dollar paid in the future is worth less than a dollar today. Present value calculations generally not used for short-term liabilities b/c the time difference is too short. More cash needs in the beginning of project than end. Arrange for line of credit w/ the bank to deal w/ temporary cash shortages.
