Current Liabilities,Provision and Contingency

Current Liabilities,Provision and Contingency - Current...

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Current Liabilities, Provision and Contingencies Group 2
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Liabilities The Framework for the Preparation and Presentation of Financial Statements provide the following definition of liabilities: “ Liabilities are present obligations of an entity arising from past transactions or events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.”
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Measurement of liabilities PAS 39 provides that an entity shall recognize initially a financial liability at: Fair value plus transaction costs that are directly attributable to the issue of the financial liability. After initial recognition, an entity shall measure a financial liability at amortized cost .
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Measurement of liabilities “Fair value” of the liability = present value of the future cash payment to settle the obligation. The term “present value” is the discounted amount of the future cash outflow in settling an obligation using the market rate of interest. Accordingly, all liabilities are measured at present value or discounted amount.
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Measurement of current liabilities Current liabilities or short term obligations – are not discounted anymore but measured, recorded and reported at their face amount.
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Classification of Liabilities Under PAS 1 on presentation of financial statements, liabilities are classified into two namely: a. Current liabilities b. Noncurrent liabilities
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Current Liabilities PAS 1, paragraph 69, provides that an entity shall classify a liability as current when: a. The entity expects to settle the liability within the entity’s operating cycle. b. The entity holds the liability primarily for the purpose of trading. c. The liability is due to be settled within twelve months after the reporting period. d. The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.
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Current Liabilities Trade payables and accruals for employee and other operating costs are part of the working capital used in the entity’s normal operating cycle. Such operating items are classified as current liabilities. Other current liabilities are not settled as part of the normal operating cycle but are due for settlement within twelve months after the reporting period or held primarily for the purpose of trading.
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Current Liabilities Examples of such current liabilities are financial liabilities held for trading, bank overdraft, dividends payable, income taxes, other nontrade payables and current portion of noncurrent financial liabilities Financial liabilities held for trading – are financial liabilities that are incurred with an intention to repurchase them in the near term.
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Long-term debt falling due within one year A liability which is due to be settled within twelve months after the reporting period is classified as current , even if: a.
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