Angeles University Foundation | Bachelor of Science in Accountancy LIABILITY The goal is to earn the title –

CPA

Liability  The entity holds the liability primarily for the purpose of
 The entity has a present obligation trading
 The obligation is to transfer an economic resource  The entity does not have an unconditional right do defer
 The liability arises from a past event settlement of the liability for at least twelve months after
the reporting period.
Present obligation  Trade Payable and accruals for employee and other
 Legal or constructive obligation operating cost are part of the working capital used in the
entity’s normal operating cycle are classified as current
Transfer of an economic resource liabilities even if settled more than twelve months after the
 Without payment of money, transfer of noncash asset, reporting period.
performance of service, there is no accounting liability.
 When an entity declares cash dividend.
 Share dividend (share dividend payable) is not an Non-current Liabilities
accounting liability.  Non-current portion of long-term debt
  Finance lease liability
Past event  Deferred tax liability
 Obligating event  Long-term obligation to officers
 The entity has no realistic alternative but settle the  Long-term deferred revenue
obligation created by the event
 For example, acquisition of goods on account. The
Long-term debt falling due within one year
obligation event is the acquisition of goods.
Refinancing
Current- after the reporting period and before the FS
Example of liabilities authorized for issue
 Accounts Payable to suppliers for the purchase of goods.
Non-current- on or before the end of the reporting period
 Amounts withheld from employees for taxes and for
contribution to the SSS.
 Accruals for salaries, interest, rent, taxes, product Covenants
warranties and profit -sharing bonus.  Attached to borrowing agreements (undertaking by the
 Cash dividend declared but not paid. borrower)
 Deposits and advances from customers. Breach of covenants
 Debt obligation from borrowed funds-notes, mortgages  Payable on demand
and bonds payable. Current- at the end of the reporting period
 Income tax payable Non-current- on or before the reporting period (grace
 Unearned revenue period, ending at least 12 months)
Measurement of liabilities .
——— —DEC.31—————————
Current Liability
Presentation of current Liabilities
 Not discounted anymore
 Recorded and reported at their face amount (FA and PV a. Trade and other Payables
are not material) b. Current Provisions
c. Short-term borrowings
Non-current Liability d. Current portion of long-term debt
 Initially measured at present value and subsequently e. Current tax liability
measured at amortized cost.
 Interest bearing note is initially and subsequently Estimated Liabilities
measured at face amount. FA and PV are equal.  Amounts are definite
 Either current or non-current
 Premium, award points, warranties, gift certificates and
Current Liabilities bonus
 The entity expects to settle the liability within the entity’s
normal operating cycle or within 12 months.

VAM | Values - Attitude – Motivation Source: Valix 2019

Angeles University Foundation | Bachelor of Science in Accountancy LIABILITY The goal is to earn the title –
CPA

Deferred Revenue 4,400,0000

Cash receipts from service contracts sold 1,000,000
Service contract costs paid 500,000 REFUNDABLE DEPOSITS
Service contract revenue recognized 800,000 After compliance with certain conditions
Returnable containers like bottles, drums, tanks and
barrels.
To record the cash receipts from service contact sold:
Cash 1,000,000
Unearned service revenue 1,000,000
Execution
Cash xxx
To record the service contract costs paid: Containers’ deposit xxx
Service contract expense 500,000
Cash 500,000
Return of deposit
To record the service contact revenue recognized:
Failure to return the deposit
Unearned service revenue 800,000
Service contract revenue 800,000

Gift Certificate Payable

When the Gift Certificate are sold
Cash xxx
Gift Certificate Payable xxx

When the Gift Certificates are redeemed

Gift Certificate Payable xxx
Sales xxx

When the Gift Certificates are expired

Gift Certificates Payable xxx
Forfeited Gift Certificates xxx

BONUS COMPUTATION
Income before bonus and before tax 4,400,000
Bonus 10%
Income tax rate 30%

Income before bonus and before tax

4,400,000 * 10% = 440,000

Income after bonus but before tax

4,400,000 - 110%
4,000,000 - 100%
400,000 - 10%

Income after bonus and after tax

4,400,000

Income after tax but before bonus

VAM | Values - Attitude – Motivation Source: Valix 2019