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Chapter+13+with+answers - Chapter 13 Current Liabilities...

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Chapter 13: Current Liabilities Read: Chapter 13 In-class exercise: Practice exercise: 1
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Current definition Three essential characteristics of a liability are: 1. Obligation requiring the transfer or use of an asset or provision of a service or giving up other economic benefits, to be settled on a determinable date or on the occurrence of an event or on demand 2. There is little or no discretion to avoid the obligation 3. Obligation arises from a transaction or event which has already occurred Proposed definition Three essential characteristics of a liability are: 1. Liabilities represent economic burdens or obligations 2. Obligation exists at the present time 3. Obligation is enforceable Financial Liabilities Recognize initially at fair value and subsequently at amortized cost or fair value Non-financial Liabilities More variations in measurement. 2
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Current Liabilities “Amounts payable within one year from the date of the balance sheet or within the normal operating cycle where this is longer than a year.” Under the IFRS 1. Expected to be settled in the entity’s normal operating cycle 2. Held primarily for trading 3. Due within 12 months from the end of the reporting period 4. Entity does not have an unconditional right to defer 3
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Common current liabilities include: 1. Bank indebtedness and credit facilities 2. Accounts Payable 3. Notes payable 4. Current maturities of long-term debt 5. Short-term debt expected to be refinanced 6. Dividends payable 7. Rents and royalties payable 8. Returnable deposits 9. Unearned revenues 10. Sales taxes payable 11. Goods and Services Tax payable 12. Income taxes payable 13. Employee-related liabilities 4
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Notes Payable Notes payable are written promises to pay a sum of money on a specified future date Arises from purchases, financing or other transactions Notes payable may be classified as either short-term or long-term Notes payable may be interest-bearing or zero-interest-bearing (non-interest- bearing) In both cases, interest expense is determined whenever financial statements are prepared Landscape Corp. borrows $100,000 Signs a 4-month, 12% note on March 1 March 1: Cash 100,000 Notes Payable 100,000 June 30: Interest Expense 4,000 Interest Payable 4,000 (100,000 x 12% x 4/12) July 1: Notes Payable 100,000 Interest Payable 4,000 Cash 104,000 5
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Landscape Corp. issues a $104,000, 4-month, zero-interest-bearing note on March 1 Present value (PV) of note and cash received is $100,000 March 1: Cash 100,000 Notes Payable 100,000 In effect: $100,000 borrowed for four months and $4,000 interest = $104,000 maturity value June 30: Interest Expense 4,000 Interest Payable 4,000 July 1: Note Payable 100,000 Interest Payable 4,000 Cash 104,000 6
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BE 13-3 11/01/08 Cash ..................................................................... 50,000 Notes Payable. ............................................. 50,000 12/31/08 Interest Expense. ...................................................... 750 Interest Payable. ........................................... 750
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This note was uploaded on 12/12/2010 for the course ACTG 2P31 taught by Professor Pacharn,p during the Fall '10 term at Brock University.

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Chapter+13+with+answers - Chapter 13 Current Liabilities...

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