HAVE

FUN !
And here your subtitle.
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SLIDESMANIA.COM
 EXAMPLES

Deposits and advances

Accounts payable to Accruals for salaries, from customers
suppliers for purchase interests, rent, taxes,
of goods product warranties, and Unearned revenue
profit-sharing bonus.
Amounts withheld from Debt obligation for
employees for taxes and Cash dividends declared borrowed funds – notes,
contributions but not paid mortgage, bonds

Income tax payable

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 Let’s review some facts.
Measurement of
Measurement of
current liabilities:
noncurrent liabilities:
at amortized cost
Initially at present value
In practice: not discounted and subsequently at
and measured at face amortized cost
amount (discount or diff
between face amount and
present value is usually
immaterial, therefore
ignored)
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 CURRENT LIABILITIES
The entity does not have an unconditional right to defer settlement of
the liability for at least 12 months after the reporting period.

The entity
The entity holds the The liability is due
expects to settle
liability primarily for to be settled within
the liability within
12 months after
the entity’s the purpose of trading
the reporting
operating cycle period
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 NONCURRENT LIABILITIES
a. Noncurrent portion of long-term
debt
b.Finance lease liability
c. Deferred tax liability
d.Long-term obligation to officers
e. Long-term deferred revenue
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 REMINDER!

Long-term debt
falling within one Breach DEFERRED
year
REVENUE
The original term was for a period Income already received but
longer that 12 months Liability not yet earned
An agreement to refinance or to becomes May be realizable within one
reschedule payment on a long-term ESTIMATED year or in more than one year
basis is completed after the Covenants payable on LIABILITIES after the end of reporting
reporting period and before the period
financial statements are authorized demand If realizable within one year;
for issue current; otherwise;
- Obligations which noncurrent
Attached to exist at the end of
borrowing reporting period
agreements which although their
amount is not
represent
definite
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undertakings by the - Either current or

borrower noncurrent
 An entity sells equipment service contracts agreeing to service equipment for a 2-
year period.
Cash receipts from contracts are credited to unearned service revenue and service
contract costs are charged to service contract expense.
The following transactions occur in the first year:
Cash receipts from service contracts sold 1,000,000
Service contract costs paid 500,000
Service contracts revenue recognized 800,000
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 JOURNAL ENTRIES

01 02
Service contract expense 500,000
Cash 1M

Unearned service revenue 1M Cash 500,000

03
Unearned service revenue 800,000
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Service contract revenue 800,000

 When GCs are sold:
Cash
Gift certificate payable

When GCs are redeemed:

Gift certificates payable
Sales

When GCs expire or when GCs are not redeemed:

Gift certificates payable
Forfeited gift certificates
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 Refundable deposits
Cash or property received from customers, but which
are refundable after compliance with certain conditions

ILLUSTRATION:
A deposit of P10,000 is required from the customer for
returnable containers. The containers cost P8,000.
Cash 10,000
Containers’ deposit 10,000
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Premiums PREMIUM
Articles of value such as toys, dishes,
silverware given to customers as a result of past sales or LIABILITY
sales promotion activities
When premiums are purchased:
Premiums
Cash
When premiums are distributed to customers:
Premium expense
Premiums
At the end of the year, if premiums are still outstanding:
Premium expense
Estimated premium liability

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 ILLUSTRATION:
An entity manufactures a certain product and sells it at
P300 per unit.
A soup bowl is offered to customers on the return of 5
wrappers plus a remittance of P10.
The bowl costs P50, and it is estimated that 60% of the
wrappers will be redeemed.
The data for the first year are as follows:
Sales, 10,000 units at P300 each
3,000,000
Soup bowls purchased, 2000 units at P50 each
100,000
Wrappers redeemed
4,000
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 To record the sale:
Cash 3,000,000
JOURNAL Sales
To record the purchase of premiums:
3,000,000

ENTRIES Premiums- soup bowls

Cash
100,000
100,000

To record the redemption of 4,000 wrappers:

Cash (800*10) 8,000
Premiums expense (800*40) 32,000
Premiums -soup bowls (800*50) 40,000
(4,000 wrappers / 5 = 800 bowls redeemed)

To record the liability at end of first year:

Premium expense 16,000
Estimated premium liability 16,000
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 Cash rebate program
Variation of premium offer
Purpose is to stimulate sales
ILLUSTRATION:
An entity offered P500 cash rebate on a particular model of TV set. The
customers must present a rebate coupon enclosed in every package
sold plus official receipt. Past experience indicates that 40% of the
coupons will be redeemed. During the current year, the entity sold
4,000 TV sets and total payments to customers amounted to P450,000.

To recognize the cash rebate program:

Rebate expense 800,000
Estimated rebate liability 800,000
To record payments to customers:
Estimated rebate liability 450,000
Cash 450,000

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Customer Loyalty Program

The sales during 2020 amounted to P9,000,000 based on stand-alone selling price.
During 2020, the customers earned 10,000 points.
But management expects that 80% or 8,000 of these points will be redeemed. The
stand-alone selling price of each loyalty point is estimated at P100.
On December 31, 2020, 4,000 points have been redeemed in exchange for
groceries.

In 2021, the management revised expectations and now expects that 90% or 9,000
points will be redeemed altogether.
During 2021, the entity redeemed 4,100 points. In 2022, a further 900 points are
redeemed.
Management continues to expect that only 9,000 points will ever be redeemed,
meaning, no more points will be redeemed in 2022.

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