IA2 – Chapter 1 - Restrictions on the borrower as to

undertaking further borrowings,

1. Liabilities – present obligations of an
paying dividends, maintaining
entity to transfer an economic resource
specified level of working capital
as a result of past events.
and so forth.
2. Essential Characteristic of Liability:
11. Grace period – a period within which
a. The entity has a present obligation.
the entity can rectify the breach and
b. The obligation is to transfer an
during which the lender cannot demand
economic resource.
immediate repayment.
c. The liability arises from a past
12. Presentation of current liabilities:
event.
a. Trade and other payables
3. Economic resource – the asset
b. Current provisions
represents a right with a potential to
c. Short-term borrowing
produce economic benefits.
d. Current portion of long-term debt
4. Legal obligation – as a consequence of
e. Current tax liability
binding contract or statutory
13. Estimated liabilities – obligations which
requirement.
exist at the end of reporting period
5. Constructive obligation – liabilities by
although their amount is not definite.
reason of normal business practice,
14. Deferred revenue – income already
custom and a desire to maintain good
received but not yet earned.
business relations or act in an equitable
Cash
manner.
Unearned service revenue
6. *There is no liability when an entity
declares a share dividend. Share
Service contract expense
dividend payable is part of equity.
Cash
7. Obligating event – past event that leads
to a legal or constructive obligation.
Unearned service revenue
- The entity has no realistic
Service revenue
alternative but to settle the
15. Gift certificates payable – redeemable
obligation created by the event.
in merchandise.
8. * all liabilities are initially measured at
Cash
present value and subsequently
Gift certificate payable
measured at amortized cost.
- Current liabilities or short term
Gift certificate payable
obligations are not discounted but
Sales
recorded at face amount.
9. Current liabilities:
Gift certificate payable
a. Financial liabilities held for trading.
Forfeited gift certificate
b. Bank overdraft
c. Dividends payable
*Philippine Department of Trade and
d. Income taxes
Industry ruled that gc no longer have an
e. Quoted debt instrument
expiration period.
10. Covenants – often attached to
borrowing agreements which represent
undertakings by the borrower.
16. Bonus computation – motivate officers
and employees by directly relating their
well-being to the success of the entity.
17. Refundable deposits – consists of cash
or property received from customers
but which are refundable after
compliance with certain conditions.
Cash
Containers’ deposit.