Accounting for Equity & Liabilities

Facilitator: Mrs. Teresa Ndirangu

Nature of Liabilities:
Expected Learning Outcome

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Revised conceptual framework for financial reporting

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Conceptual Framework- Chapters
Video on Conceptual framework
https://www.youtube.com/watch?v=v56_VJkjAX4
Main changes
What is the definition of a liability
Characteristics of the definition
1. Obligation requiring the transfer or use of an asset or provision of a service or giving
up other economic benefits, to be settled on a determinable date or on the occurrence
of an event or on demand

2. There is little or no discretion to avoid the obligation

Key issues in Liabilities
1.Classification of liabilities- (i) Current- Payable in a period not more than 12 months
(ii)Non-current L (iii) Estimated & Contingent (possible obligation)
2.Recognition of liabilities- criteria for including assets and liabilities in financial
statements
3.Valuation of liabilities- Measuring
4.Disclosure of liabilities
Valuation of liabilities
A current liability is generally valued by the amount of money needed to pay
the debt (maturity value) or the fair market value of goods or services to be
delivered
Long term liabilities are valued at present value of outstanding obligation.
Definite liabilities are known at the time of creating an obligation
Estimated and contingent liabilities are usually estimated at the end of the year.
This may require additional disclosures to be made as notes to financial
statements ( IAS 37 )
Disclosure of liability
An entity shall present asset and liabilities are in order of liquidity in statements
of financial position (IAS 1: Presenting the financial statements).

Additional disclosures may be needed for some liabilities in form of notes to

financial statements e.g. lease obligations
IAS and IFRS has specific disclosures to some particular liabilities
EQUITY
CONCEPTUAL FRAMEWORK
Equity is the residual interest in the assets of the entity after deducting all its liabilities.
For example, in a corporate entity,
1)Funds contributed by shareholders,
2)Retained earnings,
3)Reserves representing appropriations of retained earnings and
4)Reserves representing capital maintenance adjustments.
(Example: Refer to Safaricom financial statements)
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