Current Liabilities and Contingencies Contingent asset

 Possible asset
B. Premiums and Warranties  Disclosed IF probable, not recognized
 No disclosure If possible or remote
Premiums to be redeemed (% redeemed x sold)
Less: Premiums redeemed Bonds and Long Term Liabilities
Outstanding (still to be redeemed)
A. Bonds payable
Unit Cost
Delivery & Handling Not designated at FV thru P/L = FV – transaction costs
Less: Cash to be remitted Designated at FV thru P/L = expensed immediately
Net premium cost
No Amortization:
Premium expense = (to be redeemed / in exchange) x
net premium cost Face amount of bonds
Estimated liability = (outstanding / in exchange) x net Add: Premium / Less: Discount
premium cost Less: Bond Issue Costs
Carrying Amount

Estimated Warranty Liability Issue price

Accrued Interest
Actual War. Costs Less: Bond Issue Costs
(Claims/payments) Beg. Balance
War. Expense Premium = issue price > face amount
Effective rate < nominal rate
*add previous year’s estimated liability balance if next Discount = issue price < face amount
yr inaask Effective rate > nominal rate

Interest Paid = face amount x nominal rate

C. Contingents Interest Expense = CA x semiannual or annual effective
rate
Provision
 uncertain *amortization increases at either premium/discount
 both probable & measurable * add discount amort, less premium amort to reach 0 at
 equivalent to accrued loss maturity date
contingency/estimated liab
B. Notes payable
Probable – more than 50%
Possible – 11% - 50% Not designated at FV thru P/L = FV – transaction
Remote – 10% or less, very slight costs (transaction costs are included in
measurement of NP)
Measurement:
 Single obli – individual most likely outcome Irrevocably designated = expensed immediately
adjusted for effect of other possible outcomes
 Continuous range – midpoint Issued for:
 Large population – weighting cash = cash proceeds
interest bearing property/NCA = purchase price
Contingent liability noninterest bearing = cash price
 Possible obligation
 Disclosed, NOT recognized NP at FV
 Either probable or measurable but NOT both Less: Discount
 If remote, no disclosure CA
 C. Debt restructuring Interest (new Principal x int. rate x pv of ordinary at old
- Creditor grants debtor concession para hindi rate)
mahirapan magbayad si debtor Pv of new

1. Asset Swap Old liab

Less: pv of new
Note Payable Gain on modification
Accrued Interest Payable
Total liability (gain/old liab) = if more than 10%, substantial
Less: Carrying amount of asset
Gain on extinguishment of debt (MARKET RATE)

USA GAAP on asset swap ( 2 transactions ) Principal (new principal x pv of 1 at market rate)
Interest (new Principal x int. rate x pv of ordinary at
FV of land market rate)
Less: CA of land PV of New Note Payable
Gain on exchange
Old liab
Total Liability Less: PV of new note payable
Less: FV of land Gain on extinguishment
Gain on debt restructuring
PV of new note payable
2. Dacion en Pago Multiply by: market rate
- Mortgaged property is offered in payment Int. expense

3. Equity Swap D. Lease

- Issuance of share capital in payment
1. Operating
In order of priority: ( separate line item) - Does NOT transfer substantially all risks
- Lessor records depreciation and lease
revenue, monthly rental as income
- Lease payments are straight line basis over
a. FV of equity instruments issued lease term
b. FV of liability extinguished  Initial direct costs – added to CA and recognized
c. CA of liability extinguished (no gain or loss as expense over lease term (LESS AND DIVIDED
on extinguishment if this is used) OVER LEASE TERM)
 Security deposit – noncurrent liab (IGNORED)
Fair value of shares  Lease bonus – unearned rent income, amortized
Less: Par value of shares over lease term
Share Premium
Total Months (# of years x 12 months)
Bonds Payable Less: free
Accrued Interest Payable Remaining Months
CA of bonds
Less: FV of shares/bonds Total Rental over Lease Term = Total Months x monthly
Gain on extinguishment rent

Modification on terms:

10% test (OLD RATE): Total Rental Over Lease Term

Principal (new principal x pv of 1 at old rate) Divide by: No. of years
Average Annual
Multiply by: x/12 months
Rent Income for the year 3. Sales and Leaseback

1st yr Initial Lease Liability = Annual Rental Payable x PV of

2nd yr ordinary
3rd yr
Total Rental Revenue Cost of Right of Use Asset = (Initial Lease Liability/FV or
Average annual rental revenue (Total / yrs) sale price of asset) x CA of asset

Rent revenue from date of contract to date of report

(average annual x number of years)
Less: Rentals received (1st yr + 2nd yr)
Rent receivable

2. Direct Financing
- Recognize only interest income

Gross Rentals
RV (guaranteed or not)
Gross Investment

Cost of Asset
Initial Direct costs
Net Investment

Gross Investment
Less: Net Investment
Unearned Interest Income

No transfer of title/No purchase option/Revert to the

lessor:

Cost of machinery
Less: PV of RV (RV x PV of 1)
Net investment to be recovered from rental
Divide by: PV of ordinary
Annual Rental

Gross Rentals (annual rental x yrs)

RV (whether guaranteed or not)
Gross Investment
Less: Cost (net investment)
Unearned Interest Income

With transfer of title/will NOT revert to lessor:

Cost of Machinery
Divide by: PV of ordinary
Annual Rental

*RV is ignored if revert to lessor

Interest income = Cost x Interest Rate
Gain/Loss on right transferred = (right transferred to Reissuance at LESS than cost in order:
buyer-lessor/FV or sale price of asset) x total gain or loss a. Share premium from treasury shares
on sale b. RE

FV or sale price Cash

Less: CA Share Premium – TS
Total gain RE
Treasury Shares
FV or sale price
Less: initial lease liability Retirement of TS:
Right transferred to buyer-lessor
Par or stated value > cost of TS = gain on retirement
Annual rental income Par or stated value < cost of TS = loss on retirement
Less: depreciation of equipment purchased (sale price at a. Share premium from original issuance
FV/UL) b. Share premium from TS
Net rental income c. RE

Retained Earnings

Beg Retained Earnings

Net income for current year
Less: Net loss for current year
Retirement of Treasury shares
Preference Dividend (amount x %)
Less:
Dividend Distributions
Cash dividend
Property Div @ fair value
Share Dividend (% x shares x FV or Par)*
Add/Less: Prior Period Errors
Total Retained Earnings
Less: Appropriated for Treasury Shares (reacquired
treasury – sold treasury) x cost
Unappropriated Retained Earnings

*if share div is less than 20% (small share div) = amount
charged to RE is FV on date of declaration
if share div is 20% or more (large share div) = amount
charged to RE is par or stated value

(FV must NOT be lower than par, otherwise, amount

debited is equal to par/stated)

Treasury Shares

Reissuance of TS:

Reissuance at MORE than cost:

Cash
Treasury Shares
Share Premium - TS