INTEGS 2025 - LIABILITIES (Source: Class Discussion and Pinnacle RC)

CURRENT LIABILITY
DEFINITION ●​ Liability
○​ Present Obligation
■​ Legal → Contracts / Law
■​ Constructive → Expected
○​ Transfer an economic resource
■​ Pay Cash
■​ Deliver Goods
■​ Render Services
○​ Past Event → Already Incurred

PRESENTATION ●​ Balance Sheet

○​ Current
■​ Due to be settled within operating cycle
■​ Due to be settled within 12 months
○​ Non-Current
■​ Residual
■​ Due to be settled beyond 12 months

BALANCE SHEET ●​ Current Liabilities

CLASSIFICATIONS ○​ Expected to be settled in the entity’s normal operating cycle
○​ Held primarily for the purpose of being traded
○​ Due to be settled within 12 months after balance sheet date
○​ Entity does not have an unconditional right to defer settlement of
the liability for at least 12 months after balance sheet date

ACCORDING TO ●​ Financial Liability

NATURE ○​ Contractual obligation
■​ To deliver cash and financial asset
■​ To exchange financial asset and financial liability
○​ Contracts that will or may be settled in entity own equity
instrument and is not classified as equity instrument
●​ Non-financial Liability
○​ Other than Financial Liability
○​ Residual
■​ Income Tax Liability
■​ Contractual Obligation
■​ Warranty
■​ Advances from customer

EXAMPLES ●​ Current Liabilities

○​ Trade and Other Payable - ordinary course of business
■​ Note Payable (Short Term)
■​ Accrued Expenses
●​ Rent Payable
●​ Interest Payable
●​ Salaries Payable
■​ Unearned Revenue
○​ Estimated Liabilities
■​ Premiums
■​ Warranties
○​ Provisions & Contingencies
●​ Non-Current Liabilities
○​ Notes Payable
○​ Bonds Payable
○​ Leases
○​ Income Taxes
○​ Pension

OTHER INFO ●​ Dividends Payable

○​ If SILENT, cash dividends payable → Liability
○​ Cash Dividends Payable → Liability
○​ Property Dividends Payable → Equity
●​ Preference Shares
○​ RHOFL
○​ CISE

Kinds of PS Right to Redeem Classification

Redeemable PS Holder Financial Liability

Callable PS Issuer Equity

INTEGS 2025 - LIABILITIES (Source: Class Discussion and Pinnacle RC)

ACCOUNTS PAYABLE
FORMULA ACCOUNTS PAYABLE
Payment xx xx Beginning Balance

Purchase Discounts xx xx Gross Credit Purchase

Purchase Returns xx

Notes Payable xx

xx Ending Balance

REFINANCING
DEFINITION ●​ Replacement of OLD loan with a NEW loan

CLASSIFICATION ●​ General Rule: Current Liability

●​ Exception:
○​ AFTER balance sheet date but BEFORE the Date of Issuance →
Current Liability
○​ BEFORE the balance sheet date → Non-Current Liability
○​ BEFORE the FS date but BEFORE the Date of Issuance →
Non-Current Liability

TREATMENT OF ●​ Current
CURRENTLY ○​ if the original term was for a period longer than 12 months and
MATURING an agreement to refinance or to reschedule payment on a long-
LONG-TERM DEBT term basis is completed after the balance sheet date and before
THAT IS the financial statements are authorized for issue.
REFINANCED ON A ●​ Noncurrent
LONG-TERM BASIS ○​ if the refinancing is completed on or before the balance sheet
date and the refinancing is an adjusting event.
○​ Also, if the entity has the discretion to refinance or roll over an
obligation for at least 12 months after the balance sheet date.
Note that the refinancing or rolling over must be at the
discretion of the entity; otherwise, such obligation is classified as
current liability.

PAYABLE ON DEMAND
DEFINITION ●​ Breach of contract

CLASSIFICATION ●​ General Rule: Current Liability

●​ Grace Period
○​ AFTER the balance sheet date and BEFORE the official
authorization of FS → Current Liability
○​ BEFORE the end of the reporting period → Non-Current Liability

ESTIMATED LIABILITY
DEFINITION ●​ Obligations
●​ Amounts are not definite
●​ Payees cannot be identified

CLASSIFICATION ●​ Premiums
○​ Used for promotions
○​ Customer Loyalty Program - points/credits/awards
■​ Example: Starbucks
●​ Product (Coffee) → Sales
●​ Points (Planner) → Unearned Revenue
●​ Warranties
○​ Free repairs
○​ Free replacement of parts

PROVISIONS
DEFINITION ●​ Existing liabilities with uncertain timing or amount
INTEGS 2025 - LIABILITIES (Source: Class Discussion and Pinnacle RC)

●​ Are equal to estimated liabilities or loss contingencies that are accrued

because they are both probable and measurable

RULES ●​ Probable - 50% likely to happen → Provision → Journal Entry

Exp/Loss xx
Liability xx

●​ Possible: 50% or less → Contingent Liability → Disclosure

●​ Remote: 10% or less -> No Journal Entry, No Disclosure

MEASUREMENT ●​ Best estimate (management)

●​ Expected Value - Different possible outcomes
●​ Midpoint - Different possible outcomes

Contingencies ●​ POV
○​ Contingent Liability
■​ Possible Obligation
■​ Preseb Obligation
●​ Not Probable; OR
●​ Not Measurable
○​ Contingent Asset - conservative
■​ Probable → Disclosure
■​ Possible - No Journal Entry, No Disclosure
■​ Remote - No Journal Entry, No Disclosure

CONTINGENT ●​ Definition
LIABILITIES ○​ Possible obligations from past events that will be confirmed only
by the occurrence or non- occurrence of one or more uncertain
future events not wholly within the control of the enterprise; or
○​ Present obligations from past events but are not recognized
because they are not probable that an outflow of resources will
be required to settle the obligation, or the obligation cannot be
measured reliably
●​ Recognition
○​ Should not be recognized but should be disclosed, unless the
possibilities of an outflow of resources are remote

CONTINGENT ●​ Definition
ASSETS ○​ Possible assets from past events whose existence will be
confirmed only by the occurrence or non-occurrence of one or
more uncertain future events not wholly within the control of
the enterprise.
●​ Recognition
○​ Should not be recognized but disclosed where inflows of
economic benefits are probable
■​ The disclosure includes a brief description of the
contingent asset and an estimate of its financial effects. If
contingent assets are only possible or remote, no
disclosures are required

NOTES PAYABLE (PFRS 9)

DEFINITION ●​ Arising from promissory notes

MEASUREMENT ●​ Initial Measurement: Fair Value - Transaction COst

○​ Fair Value
■​ Short Term → Face Amount
■​ Long Term
●​ Interest Bearing (w/ Nominal Rate)
○​ Reasonable
■​ Nominal Rate = Effective Rate →
Face Amount
○​ Non-Reasonable → Present Value
●​ Non-interest bearing → Present Value
●​ Subsequent Measurement
○​ Face Amount → Face Amount
○​ Present Value → Amortized Cost

BONDS PAYABLE (PFRS 9)

DEFINITION ●​ Form of financing
INTEGS 2025 - LIABILITIES (Source: Class Discussion and Pinnacle RC)

●​ Bond indenture
○​ A document that includes the details and terms

MEASUREMENT ●​ Initial Measurement: Fair Value - Transaction COst

○​ Bond Issuance Cost
■​ Discount → (+)
■​ Premium → (-)
●​ Subsequent Measurement: Amortized Cost
○​ EIR = NIR → Face
○​ EIR > NIR → Discount
○​ EIR < NIR → Premium

JOURNAL ENTRY ●​ Bondholder

FAAC, FVOCI, FVPL xx
Cash xx
Cash xx
Interest Income xx
●​ Issuer
Cash xx
Bonds Payable xx
Interest Income xx
Cash xx

COMPOUND ●​ Financial Instrument that has the components of:

FINANCIAL ○​ Liabilities
INSTRUMENT ○​ Equity
●​ Can be identified by using the accounting equation:
○​ Assets = Liabilities + Equity
○​ Whereas,
■​ Assets → Cash Proceeds / Financial Income
■​ Liabilities → Fair Value of Liabilities
■​ Equity → Residual

RETIREMENT OF ●​ CA of Liability > Retirement Price = Gain

BONDS ●​ CA of Liability < Retirement Price = Loss
●​ Has two situations:
○​ Without accrued interest
○​ With accrued interest
■​ Deduct the accrued interest before comparing in
determining Gain or Loss

Note: There will be the SAME GAIN regardless of the situation. Only the cash
account will be affected.

OTHER INFO ●​ Convertible Bonds

○​ Bondholder has the right to convert bonds to shares
○​ Components:
■​ Liability → Bonds Payable
■​ Equity → Conversion Privilege (Share Premium or
Additional Paid-In Capital)
●​ Bonds with Share Warrants
○​ Bondholder has a right to buy share at a fixed price
■​ Bonds + Share
■​ Interest Income + Dividend Income
■​ Bonds Payable is not derecognized
■​ Required cash payment