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Week 10: Liabilities (Definitions of Liability (Present obligation of the…
Week 10: Liabilities
Definitions of Liability
Arising from past events
Expected to result in an
future outflow
of economic benefits from the entity
Present obligation of the entity
Equitable
Constructive
Legally enforceable
Distinguish between present obligations and future commitments
Simple Liabilities
June 30. Dr Interest Expense and Cr Interest Payable
July 1. Dr Notes Payable + Dr Interest Payable and Cr Cash
Mar 1. Dr Cash and Cr Notes Payable
Recognition of Liabilities
it is probable (more than 50%) of future economics outflow
the amount can be measured reliably
Payroll and Payroll Deductions Payable
Includes deduction for: tax, trade union fees, health insurance, etc
Example: Dr Salaries Expense and Cr Pay-as-you-go with tax payable + Cr Salaries Payable
Leases
(MUST SEE THE PPT FOR MORE DETAILS)
Finance Lease
pay at the beginning of period
30/6/2015: Dr Depreciation Expense and Cr Accumulated Depreciation
30/6/2015: Dr Interest Expense and Cr Interest Payable
1/7/2014: Dr Lease Liability and Cr Cash at Bank
1/7/2015: Dr Lease Liability + Dr Interest Payable and Cr Cash at Bank
1/7/2014: Dr Lease Asset and Cr Lease Liability
pay at the end of the period
Dr Lease Liability + Dr
Interest Expense
and Cr Cash
Dr Depreciation Expense of Lease and Cr Accumulated Depreciation
Dr Lease Asset and Cr Lease Liability
Operating Lease
Dr Lease Expense
Cr Cash
Provision and Contingent Liabilities
(MUST SEE THE PPT FOR MORE DETAILS)
Provision is estimated