Scribd
Upload
2 views

IA2 Reviewer

The document outlines key concepts in intermediate accounting related to liabilities, including current and non-current liabilities, the implications of Free On Board (FOB) shipping terms, and various types of cheques. It also discusses estimated liabilities, warranties, gift certificates, and provisions under PAS 37, detailing the conditions for recognizing liabilities in financial statements. Additionally, it covers bonds payable, including the definitions of effective and nominal rates, and the concepts of premium and discount on bonds.

Uploaded by

Kaye Lapitan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
2 views

IA2 Reviewer

The document outlines key concepts in intermediate accounting related to liabilities, including current and non-current liabilities, the implications of Free On Board (FOB) shipping terms, and various types of cheques. It also discusses estimated liabilities, warranties, gift certificates, and provisions under PAS 37, detailing the conditions for recognizing liabilities in financial statements. Additionally, it covers bonds payable, including the definitions of effective and nominal rates, and the concepts of premium and discount on bonds.

Uploaded by

Kaye Lapitan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 5

INTERMEDIATE ACCOUNTING 2

LIABILITIES
Present obligation from past transaction and events which is expected to result in an outflow of
economic benefits.

Current Liabilities - obligation that are expected to be paid within 12 months


Non-current Liability - long term debt that are expected to be paid more than 12 months

FREE ON BOARD (FOB)


 FOB shipping point - the ownership transfer when the shipment leaves the seller's place
of business.
 FOB destination - the ownership transfer when the goods are delivered received by the
buyer.
Example:
The balance of B company for its current liability after adjustment is 4,000,000. Below items
were included in the said balance.
a. Goods in transit going to B company under FOB destination. The goods were shipped by
the vendor last December 23, 2022 and received by B company on December 27, 2022,
with a cost of 75,000 and 100,000 selling price.
b. Goods in transit from B company under FOB destination. The goods were shipped by B
company last December 23, 2022 and received by the customer on December 27, 2022,
with a cost of 80,000 and 110,000 selling price. The amount included is the cost amount
c. Goods in transit going to B company under FOB Shipping point. The goods were shipped
by the vendor last January 03, 2023 and received by B company on January 08, 2023,
with a cost of 50,000 and 70,000 selling price. The amount included is the selling price.
Compute the total correct current liability of B company as of December 31, 2022?

CHEQUES
 Delivered Cheques - recorded and delivered (accomplishment of all tasks)
 Undelivered Cheques - recorded but not yet delivered
 Postdated Cheques - cannot be honored (encashed) earlier than the date on the
cheque.
 Stale Cheques - presented for payment after 6 months from the date of the cheque.
Example:
On December 17, 2022 E company is preparing its cheque for payment to all its
suppliers and creditors.

a. Cheque #1. In payment to X company, amounting to 5,000, Dated


December 19, 2022 but delivered to X company on January 7, 2023
b. Cheque #2. In payment to W company, amounting to 7,000, Dated January
3, 2023 but delivered to W company on December 17, 2022
c. Cheque #3. Postdated cheque delivered to V company amounted to
10,000 on December 23, 2022, dated December 27, 2022.
d. Cheque #4. Cheque delivered to Z company amounted to 5,000 January
10, 2022 and has not been en-cashed or withdrawn by Z company until
December 31, 2022. E company is aware of this information. (Stale
Cheque)
Compute the total current liability of E company as of December 31, 2022.

Covenants
 Restrictions on the borrower as to undertaking further borrowings, paying dividends
and so forth.

Breach of Covenants
 Upon breach of covenant, the liability becomes due and demandable on demand.
 Classified as noncurrent, if the lender has agreed on or before the end of the reporting
period to provide a grace period ending at least twelve months after that date.

Estimated Liability
 Estimated liabilities are obligations which exist at the end of the reporting period
although their amount is not definite.
 Under PAS 37, am estimated liability is considered as a provision which is both probable
and measurable.

Estimated Premium Liability


 Things such as toys, dishes, silverware, and other goods and in some cases cash
payments given to customers as a result of past sales or sales promotion activities.
Example:
Among A-ss corporation is offering a bag for every return of two bottle cups and
P5.
Total Sales of Among A-ss corporation for his soft drink store is 10,000 pcs amounting
to P100,000 for 2020.
The price of bag is P10 and Among A-ss purchased 4,000 pcs of bag.
Among A-ss corporation expected that 70% of the total sales will be redeemed.

Entry of Among A-ss upon sales of 10,000 pcs is Debit Premium Expense
P17,500 Credit Estimated Premium Liability P17,500

• September 2020 certain buyers able to return a 3,000 pcs of bottle cups.
• October 2020 another 1,000 pcs of bottle cups has been returned to Among A-ss
corporation
• November 2020 another 2,100 pcs of bottle cups has been returned to Among
A-ss corporation.
• December 15, 2020 Among A-ss corporation sold another 5,000 pcs of soft drinks,
estimated percentage for this sale to be returned is 60%
• December 20, 2020 buyers able to returned 900 pcs of bottle cups.

Questions:
1. How much is the balance of estimated premium liability as of September
2020?
3,000/2 = 1,500x5 = 7,500-17,500 = 10,000
2. How much is the cost of Premium Asset initially
10x 4,000 = 40,000
3. How much is the balance of estimated premium Liability as of October
2020?
1,000/2 = 500x5 = 2,500-10,000 = 7,500
4. How much is the balance of estimated premium Liability as of November
2020?
2,100/2 = 1,050x5 = 5,250-7,500 = 2,250
5. How much is the balance of estimated premium liability as of December 15,
2020?
5,000x60% = 3,000/2 = 1,500x5 = 7,500+2,250 = 9,750
6. How much is the balance of estimated premium liability as of December 20,
2020?
900/2 = 450x5 = 2,250-9,750 = 7,500

Estimated Warranty Liability


 Accrual approach - estimated warranties arises each time a sale transaction occurs.
 Accrual expense - shall only be given accounting recognition when such warranties
occur. Hence under this method, no liability for estimated warranties shall appear on
the statement of financial position.
Example:
T-Napkin Company is a Chinese company selling multiple type of laptop. For the
year of 2020 the total sales of T-Napkin is P2,500,000 and in 2021 is P2,700,000,
the sales are happening all through out of every year, evenly. T-Napkin is offering
a 3-year warranty coverage for its laptop unit, for the first year of coverage 3%,
second year is 6% and third year is 9%.

Gift Certificates Payable


 Gift certificates which are redeemable in merchandise and used to generate sale.
Refundable Deposits
 Cash or property received from customers but which are refundable after compliance
with certain conditions.
Bonus
 Usually given for compensation of key officers and employees by way of bonus for
superior income realized during the year.
Deferred Revenue
 Income already received but not yet earned.

PROVISION
Existing liability of uncertain timing or uncertain amount.
PAS 37, recognized as a liability in the financial statements under the following
conditions:
1. The entity has a preset obligation, legal (arising from contract, legislation, or other pattern of
law) or constructive (a valid expectation that it will accept certain responsibilities)
2. It is probable that an outflow of resources embodying economic benefits would be required
to settle obligation.
a. Probable - more likely to occur than not (more than 50%)
b. Possible - 50% or less likely to occur
c. Remote - 10% less likely to occur
d. Certain - 100%
e. Impossible - 0%
3. The amount of the obligation can be measured reliably.
 When no reliable estimate can be made, no liability shall be recognized.
 All of the requirements set under PAS 37 must be met in order for a provision to be
recognized in the financial statements.

Measurement of a provision
The amount recognized as a provision shall be the best estimate of the expenditure required to
settle the present obligation at the end of the reporting period.

When there is a continuous range of possible outcomes and each point in that range is as likely
as any other, the midpoint range shall be the best estimate.
Bonds Payable - formal unconditional promise, made under seal, to pay a specified sum of
money at a determinable future, and to make a periodic interest payment at a stated rate the
principal sum is paid.

• Effective rate - (market rate, yield rate)


• Nominal rate - (states rate, coupon rate)

"issuing bonds with corresponding rate"

Premium - effective rate is lower than nominal rate


Discount - effective rate is higher than nominal rate

You might also like