RIVERA, MARY JOY N.

BSA 2 – 1
A054 – INTERMEDIATE ACCOUNTING 2

ASSIGNMENT

1. What are the classifications and measurement of Financial Liabilities?

Classification of Financial Liabilities

All financial liabilities are classified as subsequently measured at amortized

cost, except for the following:

 Financial liabilities at fair value through profit or loss (FVPL) and derivative
liabilities – subsequently measured at fair value (e.g., designated or held for
trading).
 Financial liabilities that arise when a transfer of a financial asset does not qualify
for derecognition – subsequently measured on a basis that reflects the
rights and obligations that the entity has retained.
 Financial guarantee contracts and commitments to provide a loan at a below
market interest rate – subsequently measured at the higher of:
a. the amount of loss allowance (12-month expected credit losses), and
b. the amount initially recognized less, when appropriate, cumulative amount
of income recognized in accordance with the principles of PFRS 15.
 Contingent consideration recognized by an acquirer in a business combination –
subsequently measured at fair value through profit or loss.

Measurement of Financial Liabilities

Initial Measurement
Financial liabilities are initially measured at fair value minus transaction
costs, except FVPL. Financial liabilities classified as FVPL are initially measured at fair
value. The transaction costs are expensed immediately.

Subsequent Measurement
Financial liabilities are measured at amortized cost, except financial liabilities
that are classified as held for trading and designated at FVPL – these are measured at
fair value.

2. Differentiate Trade from Non-trade payables.

Trade payables are obligations arising from purchases of inventory that are
sold in the ordinary course of business. Trade payables are classified as current
liabilities when they are expected to be settled within the normal operating cycle or
one year, whichever is longer.
Non-trade payables are the other payables not classified as trade. These are
classified as current liabilities only when they are expected to be settled within one
year.
3. Give example of payables.

 Accounts payable – obligations not supported by formal promises to pay by

the debtor.
 Notes payable – obligations supported by promissory notes by the debtor.
 Loans payable – usually used to connote bank loans.
 Bonds payable – obligations issued by the debtor supported by promises to
pay made under seal
 Other payables arising from sources other than purchases and borrowings, such
as dividends payable, taxes payable, remittances payable, and accrued
expenses.

4. Explain Refinancing Agreement.

Refinancing agreement is the replacement of an existing debt with a new one

but with different terms, e.g., an extended maturity date or a revised payment
schedule. A long-term obligation that is maturing within 12 months after the reporting
period is classified as current, even if a refinancing agreement to reschedule payments
on a long-term basis is completed after the reporting period and before the financial
statements are authorized for issue.
However, the obligation is classified as noncurrent if the entity has the right, at
the end of reporting period, to roll over the obligation for at least twelve months after
the reporting period under an existing loan facility. Without such right, the entity does
not consider the potential to refinance the obligation and classifies the obligation as
current.

5. Examples of liabilities for remittable collections.

 Taxes withheld
 SSS premiums, Philhealth, PAG-IBIG, and similar contributions
 Output value added taxes (VAT)
 Collections made by an agent or broker on behalf of a principal