COMMERCE DEPARTMENT

DPA20033 FINANCIAL ACCOUNTING 2

SESSION 2: 2022/2023

TOPIC: “ACCOUNTING FOR TRADE PAYABLES, PROVISIONS, CONTINGENT LIABILITIES AND

CONTINGENT ASSET”.

PREPARED FOR: MOHD YUSOF BIN GHANI

PREPARED BY:
 YUVENESWARY A/P ELANSERAN
(04DAT22F1996)
 SHAZWEEN BINTI MOHD SUKRI
(04DAT22F1040)
 SHANTI DEVI A/P WISVANATHAN
(04DAT22F1019)

DUE DATE OF SUBMISSION: 6 MAY 2023

 INTRODUCTION
• ACCOUNTING FOR TRADE PAYABLES:

 In the accounting system, trade payables are recorded in a separate accounts payable
account, with a credit to the accounts payable account and a debit to whichever account most
closely represents the nature of the payment, such as an expense or an asset.
 Other types of payables, such as accrued expenses, dividends payable, or wages payable, are
recorded in other accounts in order to more easily identify them.
 Trade payables are nearly always classified as current liabilities, since they are usually
payable within one year.
 If that is not the case, then such payables can be classified as long-term liabilities.
 A longer-term liability typically has an interest payment associated with it, and so is more
likely to be classified as long-term debt.
• ACCOUNTING FOR PROVISIONS:

 Provisions in accounting refer to the amount that is generally put aside from the
profit in order to meet a probable future expense or a reduction in the asset
value although the exact amount is unknown.
 It is stated in the matching principle that it is mandatory to report all expenses
incurred in a financial year along with the revenue earned.
 This is essential as it will become misleading if cost belonging to a certain year is
recorded in previous or future balance sheets.
 Provisions, therefore, balance the current year balance to become more accurate
by ensuring expenses are included along with revenues in the same accounting
period.
• ACCOUNTING FOR CONTINGENT LIABILITIES:

 A contingent liability is a potential liability that may occur in the future, such as pending
lawsuits or honoring product warranties.
 If the liability is likely to occur and the amount can be reasonably estimated, the liability
should be recorded in the accounting records of a firm.
 Contingent liabilities are recorded to ensure that the financial statements are accurate
and meet requirements of generally accepted accounting principles (GAAP) or
International Financial Reporting Standards (IFRS).
 GAAP recognizes three categories of contingent liabilities: probable, possible, and
remote.
 Pending lawsuits and warranties are common contingent liabilities.
• ACCOUNTING FOR CONTINGENT ASSETS:
 A contingent asset is a possible asset that may arise because of a gain that is contingent
on future events that are not under an entity's control.
 According to the accounting standards, a business does not recognize a contingent asset
even if the associated contingent gain is probable.
 A contingent asset becomes a realized (and therefore recordable) asset when the
realization of income associated with it is virtually certain.
 In this case, recognize the asset in the period when the change occurs.
 RECOGNITION &
MEASUREMENT
• TRADE PAYABLES

According to MFRS 132, trade payables are financial liabilities that give rise to contractual
obligation to pay cash or other assets, to supplier of goods or services that has a contractual
right to received cash. Trade payables are categorized under current liabilities which have been
stated in MFRS 101 as above. it is a liability arises due from normal operating cycle that need to
be settled within 12 months after reporting date.
• PROVISION

MFRS 137 define provisions as another type of liability that should be considered in
the preparation of financial statements. it is a liability that carries uncertaintics
period or amount or both. A provision can be classified as a liability due to its
characteristics, which are- a past obligation event has occured- the entity has a
present obligation- there is a future outflow of benefits
• CONTINGENTS LIABILITIES

According to MFRS 137, A contingent liability is defined as :-

i. A possible that arises from past events and whose existence will be confirmed
only by the occurrence of one or more uncertain future events not wholly within
the centrel of the entity.
ii. A present that arises from past events but it is not recognized because the
amount of the obligation cannot be measure with sufficient reliability.
• CONTINGENT ASSETS

according to MFRS 137, contingent assets is defined as a possible assets that arises
from past events and whose existance will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within the control
of an entity.