Intermediate Accounting 2

2/23/22
Liabilities
Liabilities definition:
1. present obligation- existing obligation
-there is one party to another party
2. Transfer an economic resource- assets that has the right to produce economic resource
Example: cash
3. Result of past events- transactions that arise the liability has happened already; has
obligating event
PRESENT OBLIGATION
Legal obligations- example: payment to workers
Constructive obligations- example: selling phones with warranty
Remember: Liabilites are bayronon sa company
Measurement of Liabilities
Initially measured- first time to record the liability at face value. Later on, at amortized cost.
Exemption: Current Liabilities- measured at face value because payable at a short period of
time.
Interest bearing- at the start it is clearly extinguished how much is principal, and how
much is interest.
LONG TERM DEBT CURRENTLY MATURING
PAS 1- due to be settled within 12 months after the end of the accounting period is classified as
CURRENT.
Long term debt currently maturing will be reclassified:
Example: July 1, 2020- July 1, 2023
December 31, 2020 – non current
December 31, 2021- non current
December 31, 2021 – current
Refinancing is completed after balance sheet date.
Exception of reclassification: walay refinancing agreement na complete on or before the
period
 -basta naay discretion to refinance (is for a period of at least 12 months after the
reporting period.

LIABILITIES PAYABLE ON DEMAND

- Classified as CURRENT

Covenants- agreement made by the debtor and creditor

o If breached, classified as Current Liabilities.

Remember:
1. On or before
2. Within 12 months
Estimated Liabilities- cannot determine how much exactly
Contingent Liabilities- may or become a liability

Premium Liability
Promotion- activities sa business to promote the products or goods of the company
Sales promotion- objective to create urgent need on the part of the customer
Two Categories of Sales Promotion
Premiums- tangible items, goods or merchandise given to the customer
Accounting Procedures
Refer to PPT
 Chapter 2: Premium Liability
Premiums- are articles of value such as toys, dishes, silverware and other goods given to
customers as a result of past sales or sales promotion activities
o Basically, an asset.
o Return of product labels, box tops, wrappers and coupons

Matching principle- expense is recorded when sales happened.

Estimated liability- are obligations which exist at the end of reporting period although their
amount is not definite.