Intermediate Accounting 2

Chapter 1

Current Liabilities

    • An obligation is either (a) legal obligation (arising from contacts or law) or (b) constructive obligation (arising from actions that create a valid expectation on others that the entity will accept and discharge certain responsibilities).
    • Financial liabilities include contractual obligations to deliver cash or to exchange financial instruments under conditions that are potentially unfavorable.
    • Financial liabilities are classified as FVPL or amortized cost.
    • Reclassification of financial liabilities is prohibited.
    • Financial liabilities are initially measured at fair value minus transaction costs, except FVPL liabilities in which the transaction costs are expensed immediately.
    • A liability is classified as current if: (a) it is expected to be settled within the normal operating cycle; (b) it is held primarily for the purpose of trading; (c) it is to be settled within 1 year; or (d) the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.
    • A currently maturing obligation is presented as current. Only on the following instances would a currently maturing obligation is presented as noncurrent: (1) refinancing is completed as of the end of reporting period, (2) refinancing after the end of reporting period but before authorization of financial statements for issue is at the discretion of the entity, and (3) grace period is received as of end of reporting period to rectify breach of loan covenant ending at least twelve months after the end of reporting period.
    • Deferred tax liabilities are always presented as noncurrent when an entity presents a classified statement of financial position.
    • Share (stock) dividends payable are not liabilities but rather equity, i.e., an addition to share capital.