DISCUSSION

A. DEFINITION
All small and large companies have debts. Debt is the obligation of a company
arising from past transactions and must be paid in cash, goods and services in the future
(Jusuf, 2001). According to Nurwahyudi and Mardiyah (2004) that "Debt is an economic
sacrifice that must be made by the company in the future because of previous actions or
transactions." Economic sacrifice can take the form of money, assets, services or doing
certain jobs. Debt results in a bond that gives the creditor the right to claim the company's
assets.
For reporting purposes, debt is classified into two main types, namely current debt
and non-current debt (Stice, 2004). Current debt is an obligation that will mature in one
year in the normal operating cycle of the company. In addition, current debt is usually paid
with current assets. If the debt that has been classified as non-current will mature in the
next year, then the obligation must be reported as current debt. Non-current debt is an
obligation with a maturity of more than one year. In addition, non-current debt will be paid
by the delivery of non-current assets that have been accumulated for the purpose of
repayment of liabilities. The difference between current and non-current liabilities is
important because it influences the company's current ratio, where the current ratio
describes the condition of the company's liquidity, namely the company's ability to pay its
current debt (Stice, 2004).
Liability can be imposed according to the law as a consequence of memorizing
contracts or regulations. The duty or responsibility to act or do something economic
sacrifice that must be done by the company due to previous actions or transactions.
Economic sacrifice can take the form of surrender of debt, other activities of services, or
carrying out certain jobs. Previous actions or transactions can be in the form of money,
goods or services, acknowledging a burden or loss. In financial accounting, a liability is
defined as the future sacrifices of economic benefits that the entity is obliged to make to
other entities as a result of past transactions or other past events, the settlement of which
may result in the transfer or use of assets, provision of services or other yielding of
economic benefits in the future.

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 According to the FASB (SFAC No. 6, Prg. 35): The obligation is to sacrifice future
economic benefits that are reasonably certain arising from the necessity of a business entity
to transfer assets or provide / deliver services to other entities in the future as a result of
transactions or future events then.
According to the IASC: Liability is the present obligation of a company arising
from past events, a settlement that is expected to produce outflows from the company's
resources in realizing economic benefits.
According to the AASB (SAC No. 4): Obligation is a future sacrifice of the
potential services or future economic benefits that an entity currently has to another entity
as a result of past transactions or other past events.
According to APB: Liabilities are economic liabilities of companies that are
recognized and measured in accordance with generally accepted accounting principles.
Liabilities also include certain deferred loans that are not liable but which are recognized
and measured in accordance with generally accepted accounting principles.
According to IFRS (PSAK 57): Liability is the present obligation of a company
arising from past events, a settlement that is expected to produce outflows from the
company's resources in realizing economic benefits.
Liability is the obligation of a current entity arising from past events, the settlement
is expected to result in an outflow of entity resources that contain economic benefits.
(Financial accounting based on IFRS-based SAK, Hans Kartikahadi, Rosita Uli Sinaga, in
Salemba Empat: 2012)
A liability is defined by the following characteristics:
(a) Any type of borrowing from persons or banks for improving a business or personal
income that is payable during short or long time;
(b) A duty or responsibility to others that entails settlement by future transfer or use of
assets, provision of services, or other transaction yielding an economic benefit, at a
specified or determinable date, on occurrence of a specified event, or on demand;
(c) A duty or responsibility that obligates the entity to another, leaving it little or no
discretion to avoid settlement; and,
(d) A transaction or event obligating the entity that has already occurred

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 The accounting equation relates assets, liabilities, and owner's equity:

Assets = Liabilities + Owner's Equity

The accounting equation is the mathematical structure of the balance sheet.

Probably the most accepted accounting definition of liability is the one used by the
International Accounting Standards Board (IASB). The following is a quotation from
IFRS Framework:

A liability is a present obligation of the enterprise arising from past events, the
settlement of which is expected to result in an outflow from the enterprise of resources
embodying economic benefits— F.49(b)

Regulations as to the recognition of liabilities are different all over the world, but
are roughly similar to those of the IASB.

Liabilities are debts and obligations of the business they represent as creditor's
claim on business assets.

In general it can be said that obligation has three main characteristics:

1. Sacrifice of economic benefits

To be called an obligation, an object must contain a duty (duty) or responsibility to
another party that requires the business entity to pay off, fulfill, or implement it by
sacrificing economic benefits that are quite certain in the future. The sacrifice of economic
benefits is realized in the form of transfers or use of business unit assets. Sure enough in
the future it means that the amount of rupiah sacrifice can be determined properly.
Likewise, when sacrificing economic benefits can be determined on the basis of certain
events or at the request of another party (on demand).
2. Present Obligation
To be called an obligation, a future economic sacrifice must arise due to current
obligations. The definition of "present" (present) in this case refers to two things: time and
existence. The intended time is the reporting date (balance sheet). That is, at the balance

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sheet date if necessary or if forced (juridically, ethically, or rationally) the sacrifice of
economic resources must be fulfilled because the necessity exists. Of course the amount of
rupiah sacrifice imposed at the balance sheet date will not amount to the amount of rupiah
that will be paid in the future (after the balance sheet date). This difference occurs due to
the inherent nature of the obligation, namely the interest which means the time value of
money or the time value of money or the price of delay.
Contractual Requirement
Contractual requirement is a requirement arising from a legal agreement or regulation
in which the obligation for a business entity is stated explicitly or implicitly and is binding.
This obligation arises because the legal aspect is an unavoidable external environment and
that can force legally to fulfill it (legally enforceable). Avoidance of obligations from
contractual obligation results in sanctions or penalties. Examples: tax debt, interest debt,
trade payables, notes payable, and bond debt
Constructive Requirement
Constructive requirement is a necessity arising from the policy of business unity in
order to run or advance its business to fulfill what is called a good business practice or
business ethics and not to fulfill juridical obligations.
Example: free motorcycle service promised by motorcycle dealers, refunds for items
that are deformed or damaged, and holiday allowances
The necessity for justice
The necessity for justice is a necessity that exists today which creates obligations
for the company solely because of ethical or moral calls rather than due to legal
regulations or sound business practices. This requirement arises from duties to other
parties to carry out something that is deemed reasonable, and correct according to
conscience and sense of justice. There is no legal sanction for not fulfilling this
requirement but this obligation is binding because of social or moral sanctions.
Example: the obligation to give donations to charities at the end of each year and the
obligation to give gifts to residents who live around the factory because of the
inconvenience caused.
Contingency Obligation

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 Contingency obligation is a requirement that fulfillment (the amount of the rupiah or
so it is not fulfilled) is uncertain because it depends on future events or fulfillment of certain
conditions in the future. Contingency is a condition, movement, or a combination of
conditions that involve uncertainties involving contingency gain or loss contingency that
may occur. Outcome that must be confirmed by future events or conditions for both
contingencies are:
(a) Relating to contingency gains: acquisition of assets versus no, or reduction of an
obligation versus or no
(b) Relating to contingency loss: loss or decline in the value of an asset versus no or the
emergence of an obligation versus not

Contingency necessity is one form of dependence related to loss contingency. Then the
FASB explains that if there is a loss, likelihood that a future event will ensure that (b) above
can range from probable to far remote with reasonable possible between the two defined
as follows:

a. Probable.
A number of future events are likely to occur
b. Reasonably possible.
The possibility that a future event or event occurs is more than far from certain but less
than probable
c. Remote.
The possibility that something or some future event occurs is small or thin

Probable is used with its usual meaning, and refers to that which can reasonably be
expected or believe on the basis of available evidence or logic but it is neither certain
nonprofit. Its inclusion in the definition (of assets or liabilities) is intended to acknowledge
that business or other economic activities accur in an environment characterized by
uncertainty in which few outcomes are certain.

The Present Obligation is a characteristic of obligation. the fourth requirement

above is a necessity now that meets the obligation criteria. for contractual, constructive,

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and for the sake of justice. the coming of economic sources of sacrifice is generally
considered probable because an agreement has been reached or the event has been decided
so that it is clear enough and the time of the sacrifice. for the necessity of contingency, the
future sacrifice of economic resources is uncertain both the amount of rupiah and whether
or not. Therefore, not all obligations arising from the present obligation can be recognized
as liabilities. In effect, the accounting treatment for the four types of requirements can be
different.

3. Due to Transactions or Past Events

Past transactions referred to here are transactions that cause necessity now to occur. For
example, because a company gets a bank loan (with a contract), the present necessity in the
form of contractual obligation arises at the end of the accounting period (in the form of
loan principal and interest) which demands future economic source sacrifice (sometime
after the end of the period). In this case, the signing of the contract is an event that has
occurred which results in necessity. However, not all contract signing by itself creates a
necessity. Before one of the parties performs (to perform) what is agreed, the contract will
be executive.
Unconditional obligation rights
The concept of unconditional rights states that even if the contract has been signed,
one party does not have any obligation before the other party fulfills what is the right of
the other party. So, the concept of unconditional rights states "there is no right without
obligation and on the contrary there is no duty without rights. Such contracts are known as
mutual contract names - offset unconditionally or exemplary contracts.
Example: if a buyer signs a purchase order, at that time the buyer does not have any
obligation until the item ordered comes and is controlled by the buyer even though the type,
quantity, price, delivery time of the item is clear.
Transactions or events that can be used as a basis for marking recognition of rights
and obligations in a contract according to Most (1982, p. 352):
1) Date of contract signed.
2) The date the object of the contract has been obtained by one of the parties.
3) The date of the contract object is ready to be used by one of the parties.

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4) The date of the contract object has been separated to be used by another party.
5) The date the object of the contract has been submitted.
6) The date the advance has been received / paid, if any.
7) In the case of long-term construction contracts:
a. A point during construction.
b. When construction begins
When determining past transactions it needs to be carefully considered by
observing the conditions surrounding a contract. Most express the things that must be
considered to choose the right time, namely:
a. Meeting the definition of assets and liabilities.
b. Firmness of the commitment, namely how strong that the execution of a contract cannot
be canceled.
c. Benefits for decisions.
In addition to the three main characteristic of liabilities, the FASB also mentioned
several supporting characteristics. Supporting characteristics only emphasize the obligation
but do not cancel an object to be called an obligation. The following are some of the
supporting characteristics of liability.
1. Must pay cash.
Repayment of obligations is generally carried out with cash payments. The
obligation to pay cash at the time and the amount of the future rupiah is a strong or clear
indication of the obligation. To be an obligation, the delivery of assets (cash) is not the only
criterion but includes the delivery of services. The obligation lies more in sacrificing future
economic benefits rather than cash outlays. The existence of cash disbursement is important
to apply the definition of liability because of two things, namely:
a. As evidence of an obligation and
b. As a measure of attributes or the size of a liability objectively.
2. Identity paid off clearly.
If the identity is paid for, it is clear, it only confirms that the obligation does exist
but to become an obligation of paid identity it does not have to be determined at the time
of necessity. The important thing is that the necessity of the present sacrifice of economic

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 resources in the future already exists and not who should be paid or paid. However, at the
time of repayment of the obligation, payment by itself must be identified.
3. Legal power.
Indeed, In general, the necessity of an entity to sacrifice economic benefits arises
due to legal claims that have compelling power. The existence of juridical force only shows
that this obligation does exist and can be proven juridically in material. Even so, the force
that is attached to legal claims is not an absolute requirement to acknowledge the
obligation. The necessity of sacrificing future economic benefits does not have to arise
from external pressure but from internal management interests or policies. That is why the
obligation includes the sacrifice of future economic resources that arise due to constructive
necessity and for the sake of justice.
B. RECOGNITION
In principle, liability is recognized when the obligation has been binding due to a
previous transaction. Binding must be evaluated on the basis of recognition rules.
Recognition criteria are more related to general guidelines in order to meet the qualitative
characteristics of information so that financial statement elements can only be recognized
if the definition, linkage, reliability and measurability criteria are met. This general
criterion is not operational so it requires recognition rules as a description of the technical
criteria for general recognition. In the case of obligations, the rules of recognition relate to
the time or what indicates that the obligation has been binding so that an obligation can be
recognized (recorded). Kam proposes four rules of recognition to mark the recognition of
obligations, namely (pp. 119-120):
1. Availability of legal basis
This rule is related to the quality of reliability and the relevance of information.
Purchase invoice (receipt) and receipt of goods (receiving report) is a legal basis that is
convincing enough to recognize obligations. It has been stated that the availability of a
legal basis that causes forced power is only a supporting characteristic of the definition
of obligation. So, this rule is not absolute so that obligations can also be recognized if
there is substantive evidence of constructive necessity or for the sake of justice.
2. Basic concepts

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 This rule is a technical description of reliability criteria. Certain circumstances that
make the concept of applied conservatism can trigger recognition of obligations. The
implication of the concept of conservatism is that losses can be recognized immediately
but not profitably. This means that liabilities can be recognized immediately while
assets are not.
3. Determination of the economic substance of the transaction
This rule deals with the issue of information relevance. Lease obligations can be
recognized at the time of the transaction even though there is no transfer of ownership
rights in the lease transaction. In this case, the obligation can or even must be
acknowledged that substantially the lease is actually an installment purchase (ie
fulfilling one of the capitalization criteria).
4. Measuring the value of the obligation
Measurement is one of the conditions for achieving quality information reliability. The
definition of obligation contains a probable word which refers not only to the
occurrence of future economic source sacrifices but also to the amount of the rupiah.
The technical problem is when the four rules above are met. This relates to the
determination of the time (timing) of recognition of liabilities. In general, when recognition
occurs, it is very clear because most of the obligations arise from contracts that state
explicitly when binding contracts, the amount of rupiah payments for obligations, and the
time of payment. However, in some cases, the amount of rupiah (boarding) liability
depends on future events although it is quite certain that the obligation to pay in the future
cannot be avoided. Moments of acknowledging obligations are:
a. At the time of signing the contract if the rights and obligations are binding at that time.
In the case of an executive contract, recognition waits until one of the parties utilizes /
controls the agreed benefits or fulfills its obligations (to perform).
b. Simultaneously with the recognition of costs if the goods and services that become
costs have not been recorded as previous assets.
c. Along with asset recognition. Obligations arise when the right to use goods and services
is obtained.
d. In the end the period due to the use of accrual principles through an adjustment process.
This recognition results in debt items or accrued liabilities.

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Recognition of the obligation to depend

For the obligation to depend (especially the loss dependent that causes liability),
the fourth recognition rule (the measurement of the value of the obligation) and whether or
not future sacrifices of econymic sources will occur will cause recognition problems.
Contractual, constructive and fairness obligations in some cases are also dependent,
especially if the obligation involves estimating the amount of adverse future. The FSAB
provides examples of loss contingencies that have the potential to trigger recognition of
liabilities as follows:

a. Collection of accounts receivable.

b. Requirements related to product warranties and product damage.
c. Risk of loss or damage to the properity (facilities) of the unit due to fire, explosion
and other hazards.
d. Threat of taking over assets by the government.
e. Disputes that are burdensome or waiting for a decision.
f. Claims or levies that have been submitted / imposed or that may (possible) occur.
g. The risk of loss due to a disaster is borne by a loss and accident insurance company
and a reinsurance company.
h. Guarantee of other party debts.
i. The requirement for a commercial bank in the bond standby letters of credit.
j. Agreement to repurchase receivables or related assets that have been sold.

Recognition based on Conceptual Framework

The obligation is recognized in the balance sheet if it is probable that the expenditure of
resources containing economic benefits will be carried out to settle the current obligation
and the amount to be settled can be measured reliably. In practice, obligations under
contracts that have not been implemented by both parties (for example, obligations for
inventory orders that have not been received) are generally not recognized as liabilities in
the financial statements. However, such an obligation can fulfill the definition of obligation
and, if in certain circumstances the recognition criteria are met, then the obligation can be
considered as fulfilling the conditions of recognition. In this case, the recognition of
liabilities results in recognition of the assets or expenses in question.

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C. MEASUREMENT
Recognition is done after an obligation is measured with certainty. Determination
of the cost of liabilities in the event of a parallel with asset measurement. The occurrence
of liabilities is generally accompanied by acquiring assets or incurring costs. Acquisition
of assets can take the form of control of merchandise or other non-monetary assets that
occur from a purchase transaction. Asset acquisition can also be in the form of cash that
occurs from borrowing transactions (issuance of bonds) or receipt of advances for goods
or services. Therefore, the most objective measure to determine the liability at the time of
occurrence is meansured considerations in these transactions and not future economic
sacrifice rupiahs. This applies especially to long-term obligations.
For short-term liabilities, the postponement fee is deemed not material enough so
that the amount of rupiah liabilities recognized will be the same as the amount of rupiah
for future economic (cash) sources. In other words, for short-term liabilities, financing
costs (financing costs) or delays (interest as time value of money) are considered material.

An agreement is an obligation to reflect the value of the cash equivalent or the

present value (current value) of the obligation, namely the amount of the rupiah sacrificing
economic resources in case the obligation is repaid when it occurs. Thus, the business of
recording liabilities is the value of cash equivalents rather than the nominal value of debt.

1. Obligations in Purchasing Credit

The basis for measuring the most objective asset is the cash cost or implied cash
cost. Because liability is an asset mirror image, measurement also follows asset
measurements.

2. Discount and Premium Debt Bonds

The nominal value or maturity of bond debt is often regarded as the amount of the
rupiah agreement at the time of issuance of bonds for both the issuer and creditor. The basis
of such measurements is actually not right. For a debt contract with the provision of
periodic interest payments and loan principal at the end of the contract term, the
measurement of the amount of rupiah (boarding) debt and assets for the right basis of the
first time recording is implicit cash.

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In the case of long-term bonds, the amount of rupiah received by the issuer and paid by the
creditor at the time of issuance is only a small part of this total rupiah amount, which is the
total rupiah future payment (periodic interest and bond nominal). This future payment
actually consists of two elements:
a. The present value of the periodic interest payment and the present value of the bond
nominal
b. Effective interest in determining the bond price

The Meaning of Effective Bond Prices

Nominal differences with agreement awards are bond discs. For bond issuers, the
calculation of interest costs becomes incomplete if it does not pay attention to the periodic
interest calculation and the accumulated disk. The amount of rupiah bond debt at any time
(necessity at that time) before maturity will be too large if it is stated at nominal value.

Discount Bond

The bond discs that have not been amortized are not a loss because the assets obtained
previously did not reduce or dissipate. The debt bond bond at the time of issuance is a
rupiah debit amount that shows the interest costs that must be paid on the due date. Thus,
the discourse must be reported in the balance sheet as a deduction for the nominal value
(maturity) of the bond debt. thus, the bond disk account is an appraisal account of the debt
debt disk as "prepaid interest" because it has not been paid. bond disbursement is actually
an "unpaid" interest which is the total effective interest that will be paid when the bond
debt is due.

Premium Bond

Premium paid by investors for bonds is an element of the amount of the company's debt.
Interpreting the bond premium as "deferred income" is clearly not appropriate because
conceptually income or profit does not arise from the debt acquisition process.

3. Monetary and Nonmonetary Obligations

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 Monetary obligations are obligations that sacrifice the economic resources of the future in
the form of cash by the amount of the rupiah and the exact time (both single and several
periodic payments).
Nonmonetary Liability is the necessity to provide goods and services with a sufficient
number and time that usually arise because they arise due to receipt of prepayments for
these goods and services.

D. ASSESSMENT
The difference between measurement and assessment can be seen from the time of
determining the value. Measurement refers to the determination of the value of current
obligation, while assessment refers to the determination of the value of the current
obligation on the occurrence of obligations until the obligation is repaid. The definition of
assessment of liabilities at a certain time is the determination of the amount of rupiah that
must be sacrificed if at that time the obligation must be repaid.
According to FASB, there are 3 attributes of assessment: current market value, net
settlement value, and discounted value of future cash flow.

Basic assessment
Description Example
(attribute)
Obligations of option issuers
(both call and put options)
Various obligations involving
Current market value before the option term
commodities and securities.
expired and some securities
traders' obligations.
Various obligations that
involve a certain amount of Trade payables, warranty
Net settlement value rupiah are quite certain, but the debts, and short-term notes
settlement time is not sure payable.
enough.

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 Long-term monetary liabilities
Discounted value of future Bonds payable, and long-
in the amount of rupiah and
cash flow term notes payable.
when payment is quite certain.

E. SETTLEMENT
Settlement is an action or effort that is intentionally carried out by a business entity
to satisfy obligations in time and in due course of business so that it is free from these
obligations. Settlement has the purpose of removing or eliminating the direct obligations
that the company has against other companies. Obligations can be met by cash payments
or through asset transfers or the provision of services by one business to another.
At first the FASB provided guidelines for determining the criteria for the disappearance of
an obligation in SFAC No. 76 (paragraph 3) as follows:
a. Debtors pay or repay creditors and are free from all obligations related to debt. This
repayment includes recovering debt securities circulating in the capital market,
regardless of whether the debt securities are canceled or temporarily held as treasury
bonds.
b. The debtor has been legally acquitted of his status as the principal debtor (obligor) both
by the court's decision and by the creditor and it can be ascertained that the creditor
will not be required to make future payments related to debts in any form.
c. The debtor places cash or other assets that cannot be withdrawn in a trust which is
solely used for repayment of interest payments and principal of a particular loan and it
is unlikely that the debtor will be required to make future payments related to the loan.
In this situation, the debt can be declared erased or disappear even though the debtor is
juridically not free from his status as the main obligor in the original debt agreement.
The above provisions have been replaced through SFAS No.125. Due to provisions
in SFAC No. 76 is based on the indivisible-component approach. The FASB argues that
this approach to transactions that do not have enough economic substance can justify the
recognition of obligations and profit recognition that the FASB deems not
representationally faithful. Therefore, the FASB applies a financial component approach
by revising the provisions b and removing the provisions c. An obligation can be said to
disappear if it fulfills one of the following conditions:

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a. Debtor to repay creditors and liberated from the necessity inherent in the obligations.
Paying creditors includes giving cash, other financial assets, goods or services or
penetrating debt securities by the debtor to remove debt or to hold it as treasury bond.
b. The debtor has been legally released from his status as the main debt guarantor both by
court decision and by creditors.
Financial Asset Transfer
To pay off an obligation, an entity can transfer financial assets (including cash),
goods or services. In general, if the obligation has been repaid by transferring in full the
cash, goods, or services to the debtor, then the repayment is considered complete. Debtors
are no longer involved with assets or creditors financially. Repayment of obligations with
financial assets can also be complete if the delivery of financial assets is unconditional and
is considered as a sale. That is, financial assets are considered to be sold in cash and cash
that is received immediately is also considered to pay off obligations.
If the repayment of obligations is carried out by transferring financial assets that
cause continuing involvement then the obligation does not disappear completely or there
are new obligations relating to asset transfers. Examples of continued involvement are the
existence of resources, promises to repurchase, issuance of options, and guarantees with
collateral. Continued involvement will cause different treatment, whether the transfer is
treated as a sale of assets or as a secured loan. Different treatments have different
consequences for accounting for both parties.
Settlement before Maturity
If the obligation is settled at maturity, the maturity value (nominal) by itself reflects
the present value (when repayment) of the obligation so that there is no difference between
the amount of the rupiah paid and the nominal value. The maturity value will also be the
same as the book value or the default value of the liability due to the amortization process
between the nominal and the market at the time of issuance of the debt (eg bonds). During
circulation, the market value or the present value of liabilities fluctuate following the
prevailing interest rate but in general the fluctuation is not recognized in the account of the
debtor. In other words, the debtor does not recognize the existence of or for price
fluctuations. Therefore, if the debt is repaid before maturity, the debtor must redeem the

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debt at the market price so that the difference between the default value and the redemption
value can occur.
Convertible Debt
Financial instrument is basically a payment or guarantee tool so that it can be used
by the holder to pay off the debt. Convertible or convertible debt is one of the financial
instruments. This kind of debt securities usually has a status as liabilities and equity at the
same time. This means that the instrument holder has the privilege of changing the status
of the debt to equity at any time as long as the right is still valid (not yet expired). This kind
of instrument is one form of what is called a hybrid.
The most common example in practice is convertible bonds. Convertible bonds
are generally issued to attract investors because they can shift risk or change securities
status to be more profitable. Conversion rights are used to attract investors to offset the
nominal interest rate which is too low compared to the general interest rate. Therefore the
initial price is usually much higher than ordinary bonds with the same level of risk. This
advantage can be seen as the price of conversion rights that are equivalent to option rights
or warrants (options) if the shares are issued separately.
Hendriksen and Van Breda showed that convertible bonds usually have the following
characteristics:
a. The nominal interest rate is well below the market interest rate for equivalent
ordinary bonds.
b. The conversion price is set higher than the ordinary stock market price,
c. The conversion price never decreases during the conversion rights period
except for adjustments that are required due to the taking of rights inherent in
ordinary shares such as in the event of a stock split or stock dividend.
In-substance Defeasance
If the debtor forms a bond repayment fund, when the debtor no longer needs
to pay the cash due to the cash that has been deposited and the income from the
fund will certainly be sufficient to cover the debt when due, then the debtor's
obligation is substantially considered disappear even though the obligation has not
yet expired. Thus, when there is no more obligation to pay, there has been a
substantive release.

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 In the SFAS No.125 standard, FASB asserts that when a substantive release occurs,
liability cannot be removed because the incident does not fulfill the following
characteristics:
a. The debtor does not automatically become free from liability only because the company
places the asset into a representative.
b. For repayment of obligations, the source of funds is not limited to funds placed in the
representative.
c. Creditors do not have the power to freely use assets in guardianship and also cannot
stop or cancel the trust.
d. If it turns out that the assets in the guardianship exceed what is needed to pay the
principal and interest on the loan, the debtor can use the excess.
e. The creditor or his agent is not a party bound in the debt relief fund formation contract.
f. The debtor does not give up control of the asset's benefit because the benefits of the
asset are still attached to the debtor even though the debtor has acknowledged it.
F. PRESENTATION
The guidelines for presenting financial statements are clearly illustrated in PSAK
No. 1. This statement establishes the basics for the presentation of general purpose financial
statements. It explains the procedures for presenting the components of financial
statements, such as assets, liability, and equity. According to PSAK No. 1, liabilities are
presented in order based on maturity date as well as assets that are presented in the order
of liquidity. This indicates that a short term liability will be presented first, then followed
by a long term liability. In the case of sequence of protection, debt or liability that is
guaranteed to be presented first and also liabilities are presented first rather than equity.
The purpose of this sequential presentation is to make it easier for readers to evaluate
company liquidity so that the company is easy to distinguish which liabilities are short-
term and long-term which must be paid first.
PSAK No.1 divides liabilities into 2 categories, short term liability and long term
liability. A liability is classified as short term liability if it meets the following
requirements:
(a) it is estimated that it will be completed within the normal cycle period of the
company's operations; or

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 (b) maturity within twelve months from the balance sheet date.

The time of twelve months or one year has considered or converted accounting into the
normal operating cycle of the company in a period. While a liability is categorized as a
long term liability if it meets the following conditions:

(a) the initial agreement of the loan agreement for a period of more than twelve months
(b) the company intends to refinance its obligations with long-term funding
(c) refinancing of obligations with long-term funding supported by an official
repayment agreement on payment schedules agreed upon before the financial
statements are approved.

The presentation of long-term debt that is due in current liabilities will affect the
company's liquidity, so it must be distinguished between short-term liabilities and long-
term liabilities.

G. DISCLOSURE
Disclosure is a note containing an explanation of informative things that are considered
important and useful for the user other than what can be stated through the main financial
statement. Notes of the financial statements disclose about:
a. Information about the basis of the preparation of financial statements and accounting
policies that are selected and determined for important events and transactions.
b. Information presented in PSAK but not presented on the balance sheet, income
statement, cash flow statement, and report on changes in equity.
c. Additional information that is not presented in financial statements but is needed in the
context of fair presentation.
In liability disclosures generally contain notes that discuss about:
a. Maturity date
b. Interest rate
c. Withdrawal provisions
d. Restrictions made by creditors
e. Agreed assets or mortgaged as collateral.
H. LIABILITY FOR SHARIA ACCOUNTING
Accounting for liabilities includes:

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a. Recognition of immediate obligations
Disclosure and recognition of obligations must immediately explain the remittances
that have not been taken by the customer and account closure, component of third party
funds used for Giro Wajib Minimum (GWM) at Bank Indonesia, guaranteed funds so
that they are calculated for the guarantee premium that must be paid.
b. Profit sharing that has not been shared
Disclosure and recognition of undistributed profit sharing must be presented on the
balance sheet in the amount of the company's liability that must be paid immediately.
c. Deposits and deposits from other companies
Disclosure and recognition of deposits and deposits from other companies, must
explain about deposit details regarding the amount and type of deposits, the amount of
savings blocked for certain purposes and granting special facilities to depositors.
d. Debt of salam
Disclosure and recognition of salam payable must discuss about breakdown of
salam, based on the amount and type of salam capital, time period and type of currency,
salam debt to buyers who have a special relationship, and type and quantity of ordered
items.

e. Istishna debt
Disclosure and recognition of istishna debt ‘must explain about details of istishna
debt ‘based on amount, purpose, time period and type of currency, istishna debt ‘to
buyers who have a special relationship, and type and quantity of ordered items.
Disclosure and recognition of istishna debt also must explain related to liability details,
accounting policy, and amortization method and useful life.
f. Obligations of bound investment funds and other obligations
Disclosure and recognition of the obligations of a bound investment fund explain
about bound investment that has a special relationship, details of the binding investment
regarding the composition of the amount of ownership of mudharabah deposits
according to the type of rupiah and foreign currencies, and the amount of savings
blocked for certain purposes.
g. Tax debt

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 Disclosures and recognition of tax debts must explain the details of tax debts based
on the type of tax collected and paid or deposited into the state revenue account.
h. Estimated loss of commitments and contingencies
Disclosure and recognition of estimated losses on commitments and contingencies
discuss about summary changes in estimates of losses of commitments and
contingencies in the year concerned, policies and methods used to determine the
estimated loss of commitments and contingencies.
An overview of changes in estimated losses on commitments and contingencies
must explain about beginning of year balance, translation translation differences for
estimation in foreign currencies, establishment of estimates for the current year,
reduction in the formation of estimates during the year, correction because of the
transfer of commitments and contingencies to the balance sheet, and end of year
balance.
i. Loans received
Disclosure and recognition of loans received must explain about details of the
funding received regarding the type and source of funds received; the period, the loan
benefits and maturity received; c. currency type; d. the accompanying engagement; the
value of the assets of the company that is pledged; and special relationship.
If the government or other party provides assistance to the company or a loan
facility with a rate of return that is lower than the rate of return on the market,
management must disclose the assistance and its impact on net income.
j. Subordinated loan.
Disclosure and recognition of subordinated loans must explain the source of
subordinated loan funds; profit sharing ratio, time period, and maturity; currency type;
and the contract used. The transfer of loans subordinated to capital deposits can only
be made based on Bank Indonesia regulations.

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23
 CURRENT CASE

Weakening Rupiah, Indonesian Debt Increases to IDR 4,363 Trillion

The Ministry of Finance noted that the position of government debt until the end of
August 2018 amounted to Rp. 4,363 trillion. Thus Indonesia's debt ratio to August is around
30.31 percent.

The Director General of Financing and Risk Management at the Ministry of

Finance, Luky Alfirman, said that government debt has increased, partly due to external
factors such as the weakening of the rupiah against other foreign currencies, especially the
US dollar.

"This affects the amount of total outstanding debt for this August," Luky said at the
Ministry of Finance Building, Jakarta, Friday (9/21/2018).

In detail, the total debt position for SBN (Valuable State Resources) denominated
in rupiah is greater than that of foreign currency denominated SBN. Thus, the risk of
fluctuations in the value of the rupiah against the position of Government debt can be
minimized. The composition of SBN (Valuable State Resources) until the end of August
2018 reached 81.18 percent, greater than last year's 80.71 percent of the total outstanding.

Based on SBN sources, the composition of SBN debt in foreign currencies rose to
23.84 percent of total debt from the previous 22 percent to total debt. "The increase is in
line with the government's strategy to deepen the bond market, given Indonesia's position
as a middle income country that is no longer entitled to obtain concessional loans," he
explained.

On the other hand, SBSN (Sukuk) also increased because of the increasing number
of Ministries / Agencies that saw the potential and use of State Sukuk as one of the project
funding sources from Ministries / Institutions. This has led to a significant increase in the
number of SBSN.

Besides external factors, the growth of government debt was also caused by the
implementation of a front loading strategy. The front loading strategy is a strategy carried

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out by the government by withdrawing financing at the beginning when the interest rate in
the market is still low before the US Central Bank's interest rate increase.

Solution:

The main solution that must be done so that the rupiah does not continue to be
depressed is to improve the current account deficit by starting to build import substitution
industries.

Another step is to withdraw the return of export proceeds, which are now still
parked in foreign banks by, for example, freeing up the export deposit interest tax. The
return of foreign exchange proceeds is very important to support Indonesia's foreign
exchange reserves in the interest of BI to stabilize the rupiah exchange rate

For the short term, Eric emphasized that the government or Bank Indonesia
continue to intervene in the market. He also suggested that BI again raise its benchmark
interest rate by 50 bps again. Not only that, he also suggested that BI intervene in the bond
market. "BI can intervene in debt securities, they can buy when there is a sell-off," he said.

While for the long term, the government is considered to have carried out structural
improvements such as the expansion of B20 use policies and restrictions on imported
commodities.

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