Class notes: Non-Financial and Current Liabilities

1 Liability definition: (i) present obligation (cannot avoid); (ii) obligates

the (potential) transfer of economic resources (cash, goods & services
(g&s), etc.); (iii) past transaction
Obligation created by: legislation; contract; constructive (practice)

2 Financial liab: contract to (i) deliver cash or fin/asset or (ii) to

exchange fin/asset or fin/liab under potentially unfavourable conditions
Non-financial liab: items settled by g&s (unearned rev, warranties);
created by legislation – income tax, sales tax, GST

3 Measurement fin liab: initially at FV then typically at amortized cost

(include transaction costs); current fin/liab generally at maturity value
as difference not material
Measurement non-fin liab: settled with g&s; ASPE - usually at FV
(today) of g&s to be delivered in the future; IFRS - best estimate to
settle liab at SFP date; called Provisions (liab with uncertain timing or
amt); unearned revenue; guarantees; warranties; loyalty programs;
ARO’s

4 Current liab: based on time & effect on current assets; one of - settled
within normal operating cycle or held for trading or due within 12
months or does not have unconditional right to defer for at least 12
months

Current portion of long-term debt (CPLTD): only maturing portion of

principal of LTD is presented as current; callable or due on demand or
existing violation of debt agreement - all current

5 Maturing debt expected to be refinanced on a long-term basis and

therefore a current obligation BUT will not be a claim on current assets
IFRS: at reporting date, an agreement exists, allowing for refinancing
on a LT basis at its sole discretion…. then present as LT Debt
ASPE: before FS are issued, liab has been refinanced or a non-
cancellable agreement exists… then present as LT Debt

6 E8&P1

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7 ARO: asset retirement obligation; decommissioning and restoration
M: best estimate of expenditure required to settle the present
obligation; discount future costs to reporting date
Example: estimate cost $1 million to dismantle plant in 5 years;
determine present value today (10%, 5 periods) = $620,920; dr. Plant
$620,920 cr. ARO $620,920; then asset is depreciated; interest is
accrued on the ARO annually; IFRS – borrowing cost; ASPE –
accretion expense (operating costs)
It may be the case that decommissioning costs increase due to the use
of the asset (further damage to site). IFRS – charged to inventory (dr.
Inventory cr. ARO); ASPE – added to asset (dr. Plant cr. ARO)

8 BE 20, 21, 22

9 Assurance-type warranty: part of sales price; expense-based

approach; M at PV of cost of eco res needed to meet obligation;
warranty liability; total warranty expense recorded in one year; future
NI not affected
Service-type warranty: sold as an additional service; revenue-based
approach; unearned warranty revenue (liab); record revenue as
earned; record warranty expense as incurred; future NI is affected

10 E 21

11 Customer loyalty programs: points/miles; multiple deliverables;

performance obligation; unearned revenue; FV of benefit recognized
as a contract liab
Premiums and rebates: after product purchase the seller offers a
premium (free gift, discount on next purchase, etc.); premium obtained
by returning a coupon, UPC label, or some other evidence of
purchase; ASPE - expense approach; IFRS - revenue approach

12 P 13

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13 Contingencies & Uncertain Commitments: obligation uncertainty as
to existence and/or amount; uncertainty will be resolved when future
event(s) occurs or fails to occur (lawsuit; court decision)
ASPE: term contingent liab includes all situations whether recognized,
disclosed, or not disclosed; recognize liab if (i) event likely and (ii) loss
can be reasonably estimated; disclosure required; if range of
estimated loss – use best amount within range, otherwise use bottom
of the range
IFRS: if future event is probable (more likely than not) then recognize
as a liability (a provision); term contingent liab only used for possible
obligations (not recorded); use best estimate amount
14 Financial Guarantees: 1st party (guarantor) contracts to reimburse 2nd
party (lender) if 3rd party (debtor) doesn’t pay 2nd party when due; this
would be a financial liability; ASPE - use contingency standards with
increased disclosure; IFRS - initially recorded at FV (usually equal to
premium charged), subsequently at the higher of (i) expected losses
and (ii) amount initially recognized; increased disclosure

15 P 8

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