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Chapter 9-10 Liabilities

Chapter 9-10 Liabilities - Chapter 9-10 Liabilities 9.1...

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Chapter 9-10 Liabilities 9.1 Current Liabilities 10.1 Long Term Liabilities Assets are finance via: Debt (liabilities) Capital Structure (capital) Equity E.G. A=50 L=40 E=10 ->capital structure 80% debt and 20% equity Liabilities: probably debt or obligations of the firm. Conditions to be Classified as a Liability: 1. The obligation must be settled through the transaction of assets, performance of work or conferral of some other benefits. AND 2. A company has little to no discretion with respect to the obligation if liabilities are left unpaid, legal actions will follow. AND 3. The event that gives rise to the obligation has already occurred or is very likely to occur. Valuation Methods: 1. At the Gross Value E.G $1000 is due to the bank each month for 36 months $36000 (36*100) *Time value of the money is ignored (present value does not equal 36000) 2. At the Present Value Current liabilities gross value method Long term liabilities present value method (difference between the 2 is not material) Current Liabilities (due within a year): 1. Working capital loan/credit line: very short term debt (matures in 30 days) used to cover cash shortages.
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