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    ISLAM KHALED ZSC
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    Topic 4.1- Different Types of Expenses and Liabilities

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    4 views20 pages

    Topic 4.1 - Different Types of Expenses and Liabilities

    Uploaded by

    ISLAM KHALED ZSC

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    GO Learning-(J CMA PART 1: FINANCIAL PLANNING, PERFORMANCE, AND ANALYTICS UNIT 4: MEASUREMENT, VALUATION, AND DISCLOSURE: LIABILITIES ™ ‘ e mn External Financial Statements and Oa eC aU ULE UT bat Learning-( Units | aeeeareriecoaascn Unit 11 | Business Process Improvement unr | Measurement valuation and isctsure:| | ye 12 | anata, Forecasting and Satay una | Measurement Valuation, and Diclo uni 13 | Budosting — Concepts and an ar ee eee Units | Revenue and Impairment Recognition Unit 48 | Cost and Variance Measures SE ae unit7 | Cost Management Concepts Unit. a7| [ier ontents — Cosmet unit | cost Accumulation Systeme ars ieee cera Unit9 | Cost Allocation Techniques Unit 19 keeccatinn Systems: and Data unit 10 | supply Chain Management Unit20 | 8¥Stems Development and Data Analytics UNIT 4 - MEASUREMENT, VALUATION, AND DISCLOSURE: ees LIABILITIES \<] TOPIC 4.4 | TOPIC 4.3 DIFFERENT INCOME TAXES TYPES OF EXPENSES AND LIABILITIES TOPIC 4.2 TOPIC 4.4 LEASES BONDS AND NONCURRENT NOTES PAYABLE CMA TOPIC 4.1 DIFFERENT TYPES OF EXPENSES AND LIABILITIES co OTHER TYPES OF EXPENSES AND LIABILITIES Learning CURRENT LIABILITIES - sista cua) OPERATING EXPENESES - 4uicil) cis woul! * Accounts / Trade Payable Selling and Marketing Expenses * Notes Payable Administrative Expenses + Unearned Revenue = Income Tax Payable sla olol all + Current Maturities of Long-Term Debt YO PURCHASE COMMITMENT NON-CURRENT LIABILITIES - = Long-term Bonds = Non-current notes payable laxroll / alll SL>I CONTINGENCIES "Re orc orrenenrresoremensesampunsuines =—=S=~S*~“~*~S~S~S~S 8 PURCHASE COMMITMENT ‘= A commitment to acquire goods in the future is not recorded at the time of the agreement The goods are recognized as inventory when they are received. = An example of such an agreement is a ‘take-or-pay contract that requires one party to purchase a certain number of goods from the other party or else pay a penalty. + Material losses expected on purchase commitments are = measured = and ‘recognized if the current market price of ‘the goods is less than the commitment ‘price, Dr Unrealized holding loss ~ earnings SXXX Cr. Liability purchase commitment 30 = The nature and the term of the contract, co 31 December 2016 < Leoming 10,000 Barrels x $8.5 Delivery — 30 June 2017 10,000 Barrels x ‘$10 =H Market Value ‘$8.5 for Barrel 1 July 2016 a No Entry 1 July 2016 No Entry ————-—— 31 December 2016 31December 2016 —_y Income Statement Dr. Unrealized holding loss — earings _ $15,000 Cr. Liability ~ purchase commitment $15,000 Belance Sheet = <——— 30 June 2017 Dr. Inventory (Market lower than Cost $85,000 Dr. Liability -- purchase commitment $15,000 Cash_ $100,000 @ CHECK YOUR KNOWLEDGE (1/3) vewtiga Net losses on firm purchase commitments to acquire goods for inventory result from a contract price that exceeds the current market price. if a firm expects that losses will occur when the purchase occurs, expected losses, if material, A. Should be recognized in the accounts and separately disclosed as losses on the income statement of the period during which the decline in price takes place. B. Should be recognized in the accounts and separately disclosed as net unrealized losses on the balance sheet at the end of the period during which the decline in price takes place. C. Should be recognized in the accounts and separately disclosed as net unrealized losses on the balance sheet at the end of the period during which the contract is executed. D. Should not be recognized in the accounts until the contract is executed and need not be separately disclosed in the financial statements. "Ri orcs vrrenenrresoreensesampunauies =—S=*~S~*~—“S~*s*~S co @ CHECK YOUR KNOWLEDGE (1/3) LeamingiD Net losses on firm purchase commitments to acquire goods for inventory result from a contract price that exceeds the current market price. if a firm expects that losses will occur when the purchase occurs, expected losses, if material, @ Should be recognized in the accounts and separately disclosed as losses on the income statement of the period during which the decline in price takes place. 22 S& Should be recognized in the accounts and separately disclosed as net unrealized losses on the balance sheet at the end of the period during which the decline in price takes place. & Should be recognized in the accounts and separately disclosed as net unrealized losses on the balance sheet at the end of the period during which the contract is executed. §@. Should not be recognized in the accounts until the contract is executed and need not be separately disclosed in the financial statements. "orcs orrenenrnmesoreensesampunauies=—S=~S~*~“—*~S~S @ WarRANTY = Awarranty is a written guarantee of the integrity ofa product or service. In this warranty, the seller agrees to repair or ‘eplace a product, refund all or part ofthe price, ‘or provide addtional service. A warranty is offered for a limited time, such as 2 years. It may be separable or inseparable warranty. INSEPARABLE WARRANTY [Expenses Warrant Seller f=} me 213 Years eo puyer seller | onibe=D . tai eS Warranty 213 Years SEPARABLE WARRANTY ‘Sal Seller Warranty «23 @ WarRANTY INSEPARABLE WARRANTY i ee} fi Ed 4 ASSURANCE-TYPE WARRANTY co Leoming SEPARABLE WARRANTY é Warranty 4 = 4 SERVICE-TYPE WARRANTY "Ra orcs prrenenrresoremensesampuasuines —S=~S~S 2 @ WARRANTY - INSEPARABLE WARRANTY tom (ASSURANCE-TYPE WARRANTY) « Under INSEPARABLE WARRANTY - | 1 January 2017 Buyer $100,000 Seller incurrence of warranty expense is probable e and the amount can be reasonably estimated, @ liability for warranty costs is fecognized when the ‘elated revenue is Ea 4 January 2017 - Sales 8% Warranty (2 Years) nized, ie., on the day thi is recognized, 2, on the day the product BT oS 49.909 RAEN EES Cr Sales $100,000 + Even if the warranly covers @ period longer a than tho orod in which the produc is sod, 'anwary 2047 - Warr a the entire lebilty (expense) forthe expected _DF- Warranty Expenses (Income Statement) $3,000 seamaay cis tant Be weap et the Cr. Warranty Liability $3,000 sa00 era soci yer Soller i f =} 20November 2017 2? = Actual payments for warranty costs reduce zo novemner 2017 Dr. Warranty Liability $1,000 the emount of warranty liebilty recognized = “7 Cr. CashiInventory $1,000 and do not effect warranty expense. 15 March 2018 Dr. Warranty Liability $2,000 = Anythings over the warranty is recognized 25 Dy Warranty Expenses (IS) $4,000 warrenty expense. Cr. CashiInventory $6,000 "RD orcs orrenenrrresoremensesampunguines. —=—S=~S~*~“S~S*~“~*~*~S~S 5 @ CHECK YOUR KNOWLEDGE (2/3) In Year 1, a company began selling a product under a 2-year warranty. The estimated warranty costs are 3% of sales in the year of sale and 5% in the following year. Sales and actual warranty payments for Year 1 and Year 2 are as follows: Sales Warranty Payments Year? $300,000 $5,000 Year2 $500,000 $37,000 How much the ending balance of warranty liability at the end of Year 2? "RD orc orrenenrresoreensesampinauies=—S=*~<~S~*s~“—~*~*~*~S co Leora @ CHECK YOUR KNOWLEDGE (2/3) Leaning In Year 1, a company began selling a product under a 2-year warranty. The estimated warranty costs are 3% of sales in the year of sale and 5% in the following year. Sales and actual warranty payments for Year 1 and Year 2 are as follows: Sales Warranty Payments Year1 $300,000 $5,000 Year2 $500,000 $37,000 How much the ending balance of warranty liability at the end of Year 2? fear 1 B- Beginning Balance of Warranty A- Warranty Expenses {300,000 x (3%+5%)) $24,000 S- Less: Warranty payments ($5,000) E- Ending Balance, Year 1 $19,000 co Beginning Aaaiti Substract Enaing Year 2 B- Beginning Balance of Warranty $19,000 ‘A- Warranty Expenses (500,000 x (3%+5%)} $40,000 S- Less: Warranty payments ($37,000) E- Ending Balance, Year 2 $22,000 "Re orcs orrenenrresoremensesampunaunes——SOS=*~S~S~S * @ WaRRANTY - SEPARABLE WARRANTY ee (SERVICE-TYPE WARRANTY) 1 January 2017 - Sales Dr.Cash $100,000 Cr. Gales $100,000 + Under SEPARABLE WARRANTY ~ the warranly is sold seperately trom the product. +The Warranty revenue is deferred 4 January 2017 - Warranty Revenue the We yy DeCash $5,000 aa 6 Wesusiy! tees 1 Aeareray, Cr. Deferred Warranty Revenue (B.S) $5,000 nm recognized on the straightline basis $5000 over the term ofthe contract 31 December 2017 Expenses in fulfilling the contracts Dr. Deferred Warranty Revenue $2,500 Z ‘should be expensed 5 period costs Cr. Warranty Revenue (IS) $2,500 when incurred 20 April 2018 4 January 2017 Dr. Warranty Expenses (Income Statement) $3,000 Buyer $100,000 Seller Cr. Cash/Inventory $3,000 f a= + 34. December 2018 | Dr. Deferred Warranty Revenue $2,500 J Warranty (2 Years) - $5,000 Cr. Warranty Revenue (IS) $2,500 "Re orcs orrenenrrmesorepensesampuneuines.=—S=~S~S co OTHER TYPES OF EXPENSES AND LIABILITIES Learning CURRENT LIABILITIES - sista cust) OPERATING EXPENESES - Siti) cis woul! * Accounts / Trade Payable Selling and Marketing Expenses = Notes Payable Administrative Expenses + Unearned Revenue * Income Tax Payable 41 pil olol Yl + Current Maturities of Long-Term Debt Ge PURCHASE COMMITMENT NON-CURRENT LIABILITIES - * Long-term Bonds —— + Non-current notes payable loxroll | lal! S21 CONTINGENCIES "Re orc prrenenrrresoremensesampunsuines. =—S~=~S~*~“

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