ACCT2011 S1 2011 Week 5 Liabilities and Equity 6pp

ACCT2011 S1 2011 - ACCT 2011 Week 5 Liabilities and Equity Objectives of Week 5 Explain the definition and recognition criteria for liabilities and

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28/03/2011 1 ACCT 2011 Week 5 Liabilities and Equity 2 Objectives of Week 5 Explain the definition and recognition criteria for liabilities and equity Describe which events should be treated as provisions (liabilities) and apply the appropriate accounting treatment Discuss the nature of contingent liabilities and their accounting treatment Discuss how liabilities and equity are distinguished Apply the appropriate accounting treatment for compound financial instruments 3 Readings Deegan Handbook - AASB 101 Presentation of Financial Statements - AASB 132 Financial Instruments: Presentation - AASB 137 Provisions, Contingent Liabilities and Contingent Assets Self-study questions: refer to Blackboard 4 Outline A. Liabilities 1. 2. Provisions 3. Contingent liabilities 4. Measurement 5. Disclosures B. Equity 1. Definition 2. Ordinary shares 3. 4. Liability or equity? 5. Preference shares 6. Convertible notes C. BP and Contingent Liabilities 5 A. Liabilities 1. Definition & Recognition Definition – see AASB 137 ¶10 Present obligation duty or responsibility to act/perform in a certain way towards an external party - not necessary to know who the external party is most obligations are legally enforceable (arise from contracts) - may also be a constructive obligation (inferred from the facts/circumstances) mere intention to sacrifice economic benefits is not sufficient 6 Outflow (sacrifice) of economic benefits little, if any, discretion to avoid future sacrifice of economic benefits - i.e., failure to honor obligations will result in legal, social, political or economic consequences future sacrifice may take various forms - e.g., cash, goods, using up resources to provide services settlement may be on demand, on a specified date, or when an event occurs
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28/03/2011 2 7 Past events (¶17) event must leave the entity with no realistic alternative but to settle the obligation only obligations arising from past events that exist independently of future actions should be recognised 8 Recognition criteria - (Framework ¶83) Probable Reliable measurement - Note: where the obligation is mature or unconditional and settlement is certain then recognition criteria are more likely to be satisfied - A liability that fails the recognition criteria may require disclosure as a contingent liability AASB137: Appendices A & B 9 Types of Liabilities 10 Hierarchy Types Characteristics Liability Accounts Payable Accruals Borrowings Legal or constructive obligation Settlement certain Measurement reliable Provision Warranties Employee benefits Liability where timing is uncertain Contingent Litigation of uncertain outcome Future capital expenditure not yet approved by Board Uncertainty due to future event therefore obligation only possible or no estimate or unreliable 11 A.2. Provisions Definition – see AASB 137 ¶10
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This note was uploaded on 04/29/2011 for the course ACCT 2011 taught by Professor D during the Three '11 term at University of Sydney.

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ACCT2011 S1 2011 - ACCT 2011 Week 5 Liabilities and Equity Objectives of Week 5 Explain the definition and recognition criteria for liabilities and

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