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CHAPTER 1: LIABILITIES
Liabilities - present obligation of an entity to transfer an economic resource as a result of past events
Measurement of Liabilities:
Current liabilities - recorded and reported at face amount
Noncurrent liabilities - Bonds payable and noninterest bearing note payable = initial measured at present value and subsequently
measured at amortized cost
If the long-term note payable is interest-bearing = face amount (initial and subsequent)
Long Term Debt Falling Due Within One Year
A liability which is due to be settled within twelve months after the reporting period is classified as current, even if:
a) The original term was for a period longer than twelve months.
b) An agreement to refinance or to reschedule payment on a long term basis is completed after the reporting period and before the
financial statements are authorized to issue.
If the refinancing on a long-term basis is completed on or before the end of the reporting period, the obligation is classified as
noncurrent.
If the entity has the discretion to refinance an obligation for at least twelve months after the reporting period under an existing loan
facility, the obligation is classified as noncurrent.
If the entity has an unconditional right under the existing loan facility to defer settlement of the liability for at least twelve months
after the reporting period, the obligation is considered part of the entity’s long term refinancing.
Covenants - often attached to borrowing agreements which represent undertakings by the borrower
Breach of Covenants
PAS 1, par. 74, provides that if a liability becomes payable on demand, such liability is classified as current even if the lender has
agreed after the reporting period and before the statements are authorized for issue, not to demand payment as consequence of the
breach.
The liability is classified as noncurrent if the lender has agreed on or before the end of reporting period to provide a grace period
ending at least twelve months after that date.
Estimated Liabilities - obligations which exist at the end of reporting period although their amount is not definite