Liabilities s209 3pp rev

Liabilities s209 3pp rev - ACCT2011 Financial Accounting A...

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1 ACCT2011: Financial Accounting A Lecture Week 6 Topic: Liabilities A. Definition B Measurement C New developments Reading: As per unit of study outline Outline of Lecture A. What is a liability and how can a liability be distinguished from equity? B. How should we measure liabilities? Current Non-Current C. How might this change in future A. What is a liability ? • A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits ( AASB Framework para. 49 (b) ) • A liability should be recognised when – it is probable that economic benefits will flow from the entity; and – it can be measured reliably •( AASB Framework para. 83 )
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2 A: Liability or Equity Equity is the residual interest in assets after deducting all of the liabilities ( AASB Framework para. 49 (b) ) • Represented in the accounting equation: Assets - Liabilities = Equity Examples Liabilities • Accounts payable • Wages payable • Loan from the Bank Equity • Ordinary share capital • Retained earnings • Revaluation reserve Example Lease Liability Present obligation to pay the minimum lease payments Arising from a past event – inception of the lease • Settlement is expected to result in an outflow of economic benefits, i.e., payment of lease rentals
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3 Types of Liabilities Uncertainty Very low Very high Borrowings Accruals Provisions Contingent liabilities Accounts payable Provisions Provisions are liabilities for which the amount of the future sacrifice is uncertain. That is, whether a liability is a provision or some other type of liability, such as borrowings, trade creditors or accruals, depends upon the extent of uncertainty associated with the amount of the future sacrifice. • E.g., Provision for warranty, provision for long service leave Contingencies • Contingent liabilities (AASB 137): • A present obligation that is – Not sufficiently probable OR – Not able to be measured reliably • A possible obligation E.g., an unresolved lawsuit, potential liability resulting from a tax audit in progress Contingent liabilities are not recongised. They are disclosed in the notes unless they are remote.
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4 Definitions in AASB 132 Financial Instruments: Presentation • AASB 132 applies to financial instruments •A financial liability is any liability that is contractual obligation –( i) To deliver cash/other financial asset to another entity – And some other very complicated versions of liabilities beyond the scope of this week’s material (AASB 132.11) Definitions in AASB 132 Financial Instruments: Presentation •An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities • E.g., ordinary share capital
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5 Hybrid Securities • The textbook uses the term hybrid securities to refer to financial instruments that have
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This note was uploaded on 08/27/2011 for the course ACCT 2011 taught by Professor D during the Three '11 term at University of Sydney.

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Liabilities s209 3pp rev - ACCT2011 Financial Accounting A...

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