Saint Mary’s University

Bayombong, Nueva Vizcaya

School of Accountancy and Business

Prepared by: Sison, Aubrey R.

1. What are accrued liabilities? What is commercial paper?

An accrued liability is a financial obligation that a company incurs during a

given period but has not yet paid for. Although the cash flow has yet to occur, the
company must still pay for the benefit received. As accountants, we record all
expenses in the financial statements by the period in which they are incurred
rather when cash transaction occurs. Revenues and expenses should be
recognized in the same period. This dictates now the concept of an accrued
liability that relates to timing and the matching principle.

Commercial paper is an unsecured form of promissory note that pays a

fixed rate of interest. It is typically issued by large banks or corporations to cover
short-term receivables and meet short-term financial obligations, such as funding
for a new project.

2. Why did Blacklist International include some long-term debt in the current liability
section?

Blacklist International include some long-term debt in the current liability

section because the current portion of it is already demandable. As PAS 1
paragraph 69 classifies a liability as current when the liability is due to be settled
within twelve months after reporting period. Provision 6 states that the company
accrue P 132 million in anticipation of remediation and claims settlement deemed
probable. Now since it is probable, it is considered to be current liability.
Provision shall be reviewed at every end of the reporting period and adjusted to
reflect the current estimate.

3. Did they also report some current amounts as long-term debt? Explain.
 Saint Mary’s University
Bayombong, Nueva Vizcaya
School of Accountancy and Business

Yes, the company had reported current amounts as long-term debt. Since
they’ve classified P65.0 million and P78.0 million, respectively, of commercial paper and
bank notes as long-term debt, this must still be classified as current liability. Because
the company did not yet enter into a refinancing agreement. As indicated, the company
only has the intention and ability to renew these obligations into future periods through a
formal renewal agreements.

4. Must obligations be known contractual debts in order to be reported as liabilities?

No, liabilities should be reported as when obligations of an entity arise. It is not

necessarily a contractual debt, one that is an agreement in which you agree to repay
funds to a lender. As long as it is from past transactions or events, the settlement of
which is expected to result in an outflow from the entity resource embodying economic
benefit should be reported as a liability.

5. Is it true that current liabilities are riskier than long-term liabilities?

Current liabilities are indeed riskier than long-term liabilities due to the fact that in
most of business settings, outsiders like banks prefer long-term liabilities that enables
them to report a higher working capital. Current liabilities are used in solving working
capital and current ratio which means that whenever the current liabilities are high, there
would be low working capital. Working capital is essential when applying for a loan
because it is explicitly restricted in loan contracts. This would be the basis whether to
grant you a loan or not. If they have seen that the company has many current liabilities,
that would be a doubt whether the company is capable of paying a loan or not.