Assignment 1: Chapter 12 Liabilities

1. Give 6 Examples of Financial Liabilities

a. Define each six Financial Liabilities
b. Give each six example transaction problems
c. Journalized each six transaction problems with description of the events.

Examples 1. Notes 2. 3.Accounts 4. Bonds 5. Loans 6. Bail

Payable Interest Payable payable Payable Payable
Payable
Definition is a liability is the is a current Is just a The loan is A bail
account interest liability promise to documented bond is an
where a expense account in pay a series in a agreement
borrower that has which a of payments promissory by a criminal
records a been company over time note. If any defendant to
written incurred records the (the interest portion of appear for
promise to (has amounts it component) the loan is trial or pay a
repay the already owes to and a fixed still payable  sum of
lender. occurred) suppliers or amount at as of the money set
but has vendors for maturity (the date of a by the court.
not been goods or face company's The bail
paid as of services amount). balance bond is
the date that it Thus, it is a sheet, the cosigned by
of the received on blend of an remaining a bail
balance credit. annuity balance on bondsman,
sheet. (the interest) the loan is who charges
and lump called a loan the
sum paymen payable. defendant a
t (the face). fee in return
for
guaranteein
g the
payment.
Transaction Kai The note On the date Assume that A small Assume that
Problems Company has a specified in Kai business Kyle had
loans to a 10% the Company owner and been charge
bank interest agreement, issues 5- Kyle would a criminal
P2,000,000 rate, Kai year, 8% like a offense and
payable Company bonds. P30,000 he must pay
quarterly pays the Bonds loan to get for bail bond
to the P2,000,000 frequently her bike for P20,000.
bank. loan back to have a company off
the lender. P2,000 face the ground.
value and
pay interest
 every six
months.
Journal Entry in Excel

2. Described briefly the difference between Contingent asset and Contingent

liability. How it is presented in the Financial Statement.

Contingent Asset Contingent Liability

 a possible asset that arises from  a possible obligation depending on
past events, and   whether some uncertain future
 whose existence will be confirmed event occurs, or 
only by the occurrence or non-  a present obligation but payment is
occurrence of one or more not probable or the amount cannot
uncertain future events not wholly be measured reliably.
within the control of the entity.  Since there is common ground as
 Contingent assets should not be regards liabilities that are uncertain,
recognized – but should be IAS 37 also deals with
disclosed where an inflow of contingencies. It requires that
economic benefits is probable. entities should not recognize
When the realization of income is contingent liabilities – but should
virtually certain, then the related disclose them, unless the possibility
asset is not a contingent asset and of an outflow of economic resources
its recognition is appropriate. is remote.
 Upon meeting certain conditions,  A potential or contingent liability
contingent assets are reported in that is both probable and the
the accompanying notes of financial amount can be estimated is
statements. recorded as 1) an expense or loss
 They are recorded on the balance on the income statement, and 2) a
sheet only when the realization of liability on the balance sheet.
cash flows associated with it  A loss contingency which is
becomes relatively certain. possible but not probable will not
 applicable to IFRS, states the be recorded in the accounts as a
following: “Contingent assets are liability and a loss. Rather, it will be
not recognized, but they are disclosed in the notes to the
disclosed when it is more likely than financial statements.
not that an inflow of benefits will  A loss contingency that is probable
occur. However, when the inflow of or possible but the amount cannot
benefits is virtually certain an asset be estimated means the amount
is recognized in the statement of cannot be recorded in the
financial position because that company's accounts or reported as
asset is no longer considered to be liability on the balance sheet.
contingent.” Instead, the contingent liability will
be disclosed in the notes to the
financial statements.
 A loss contingency that is remote
 will not be recorded and it will not
have to be disclosed in the notes to
the financial statements. An
example is a nuisance lawsuit
where there is no similar case that
was ever successful.

3. Discuss the following:

a. Initial measurement of financial liabilities
b. Subsequent measurement
c. Transaction cost
d. Recognition of Liabilities
e. Contingent Liabilities 

Initial Subsequent Transaction Recognition of Contingent

Measurement Measurement Cost Liabilities Liabilities
Financial Initial a. Measurement These are A liability is Contingent
Liabilities measurement of is at amortized included in recognized in liabilities are
financial assets cost except for the initial the balance possible
and liabilities, financial carrying sheet when it obligations
except those at liabilities at value of is probable whose
FVPL, is at fair FVPL. financial that an existence will
value •Subsequent assets and outflow of be confirmed
plus transaction measurement – liabilities resources by uncertain
costs. At initial financial unless they embodying future events
recognition, an liabilities. are carried economic that are not
entity shall There are only at fair benefits will wholly within
measure a two categories value result from the the control of
financial liability of financial through settlement of the entity. An
at cost, i.e., at the liabilities: those profit or a present example is
value of the at fair value loss when obligation and litigation
received asset or through profit or the the amount at against the
service. Related loss (including transaction which the entity when it
transaction costs trading costs are settlement will is uncertain
shall be liabilities), and recognized take place can whether the
recognized as other. Trading in the be measured entity has
expenses in liabilities income reliably. committed an
the income (including statement. act of
statement in the derivatives when Criteria for wrongdoing
same period they have Recognition of and when it is
when they are negative fair Liabilities: not probable
incurred. values) are that settlement
measured at fair A liability will be needed.
value. The should be
changes in fair recognized in Contingent
value are the statement liabilities also
included in of financial include
the net profit or position when obligations that
loss for the and only are not
period. All other when: recognized
(non-trading) (a) it is because their
financial probable that amount cannot
liabilities are the future be measured
carried at sacrifice of reliably or
amortized cost. economic because
benefits will settlement is
be required; not probable.
and Contingent
(b) the liabilities do
amount of the not include
liability can be provisions for
measured which it is
reliably. certain that the
entity has a
present
obligation that
is more likely
than not to
lead to an
outflow of cash
or other
economic
resources, even
though the
amount or
timing is
uncertain.

A contingent
liability is not
recognized in
the statement
of financial
position.
However,
unless the
possibility of an
outflow of
economic
resources is
remote, a
contingent
liability is
disclosed in the
notes.