CURRENT LIABILITIES

BASIC CONCEPTS Essential characteristics

 present obligations, not required sino, ano, kalian ang babayaran

 Arising from past events - obligating events:
1. Legal – law or contract
2. Constructive – entity’s past actions
 Settlement through outflow of cash, NA, provision of services

CLASSIFICATIONS
MEASUREMENT

Financial Non-financial
FVPL AC
-Irrevocable -if not FVPL
designation -if silent
-Held for trading
Initially FV FV less TC Best estimate of outflow

Subsequently FV AC Best estimate of outflow

FV changes ✔ ❌ ❌
Amortization ❌ ✔ ✔ if initially measured at PV
Interest Nominal rate Effective rate Effective rate if PV, otherwise
Expense nominal

FS PRESENTATION

Current Liability Refinancing applies to LT debt

currently maturing
1. Settled in normal operating  Right to refinance = NCL
cycle  No right to refinance
2. Within 12 months after 1. Undergo financing on/before
reporting period year end (adjusting event) =
3. Held for trading NCL
4. The entity has no 2. After year-end (non-
unconditional right to defer adjusting) = CL
settlement for at least 12
months after the end of Breach of Covenant
reporting period GR: CL
Otherwise NCL XP:
 no grace period = CL
 With grace period
- After year-end = CL
- On/before year-end
12 mos/more = NCL
Less than 12 mos = CL
SPECIFIC LIABILITIES Trade AP Unearned Income

Unadj Balance xx Goods = advances from customers

Undelivered Checks xx Services = advances from customers
Use of Resources = Unearned Int Inc, Advance Rentals
Postdated Check xx Gift Certificates
Debit AP Balances xx
Effect of Freight terms xx/(xx) Unearned Income
Adjusted Balance xx Earned portion Beginning
Cash Receipts
FOB SP, FC = no effect Ending
FOB D, FP = no effect
Gift Certificate
FOB SP, FP = ↑ AP
Redemption Beginning
FOB D, FC = ↓ AP
Expiration Sales
Ending

Refundable Deposits Payroll Taxes Payable

Returned Depo Beginning 1. Withholding taxes (deducted to salary)
Depo Expired Receipts 2. Employee contributions (deduct to salary)
Ending 3. Employer contributions

Return
Refundable Depo xx
Cash/Property xx Escrow Liability
- If may intermediary entity, usually banks and
Expire other financial institutions
Refundable Depo xx
Other income xx Escrow Liability
Remittances Beginning
Receipt Expenses paid Receipts
Interest Income
Cash xx
Ending
Refundable Depo xx
NOTES PAYABLE
Financial Liability

MEASUREMENT FVPL AC
Initially FV FV less TC
subsequently FV AC
FV Changes ✔in P/L ❌
Short term Long term
IB = Face Value IB = Face Value if
NIB = Face Value reasonable rate,
otherwise PV
NIB = PV

DEBT RESTRUCTURING
ASSET SWAP EQUITY SWAP MODIFICATION OF TERMS
Full settlement results to derecognition - Reduce the interest or forgive it
of liability Total Liab (include accrued int) xx - Extend the maturity or reduce
Initial Meas. of equity inst (xx) the amount at maturity
Gain on Extinguishment xx
Total Liab (include accrued int) xx Reported to P/L Total Liab (P+Acc Int) xx
CA of asset given (xx) PV of modified liab
Gain on Extinguishment xx PV of Principal (xx)
Reported to P/L Initial measurement:
PV of Interest (xx)
1. FV of equity Using the original EIR
2. FV of Liab
Gain on Extinguishment xx
US GAAP 3. CA of Liab This must be atleast 10% of old liability
otherwise no substantial modification
FV Ass Given xx Total Liab xx
CA Ass Given (xx) FV ass given (xx) If with substantial modification
G/L on Exchange xx G/L on xx Total Liab (P+Acc Int) xx
Restructuring
PV of modified liab
PV of Principal (xx)
PV of Interest (xx)
Using the new EIR
Gain on Extinguishment xx
Must be net of arrangement fee

LOANS PAYABLE

Face Value xx
Less: Origination fee xx – unearned int income amortized over the term
Initial Measurement xx - subsequently at amortized cost, using amortization table
BONDS PAYABLE
Indenture = contains the details of the bond contract - bonds is transferrable
Certificate = ownership evidence

Bonds
Borrower Investor
(Issuer) funds (holder)

DIFFERENT TYPES As to maturity As to transferability & payment of

OF BONDS interest
1. Term Bonds – may one period 1. Registered bonds – holder must be
2. Serial Bonds – series of maturity registered in the entity issuer’s books
3. Extendable Bonds – holder has the 2. Bearer/Coupon bonds – the bearer is the
right to extend the maturity date owner, ay may annual interest bearing
4. Retractable Bonds – holder has the 3. Zero –coupon – no annual interest bearing
right to shorten the maturity date 4. Income Bonds -
5. Participating – aside sa bond, may portion
ka din sa kita ng entity

As to risk & security As to redemption

1. Mortgage – real property 1. Callable – issuer has the right
2. Collateral Trust – personal property 2. Convertible – issuer can convert cash
3. Debenture – no required collateral settlement to equity
4. Junk – most risky, highest return
CLASSIFICATION
FVPL AMORTIZED COST (AC)
MEASUREMENT
Initially FV FV less TC
subsequently FV AC
Changes in FV ✔in P/L ❌
Amortization ❌ ✔
Interest Expense Nominal effective
*fair value excludes accrued interest *bonus at AC
- remember PELN and DEHN??
*issue price (net cash received) - if not remember it
FV xx
Less: TC (xx)
Add: Accrued Int xx
Issue Price xx

RETIREMENT OF Retired at Maturity No accounting issue because CA = Face Value, hence, no gain or
BONDS loss
Retired before
Maturity Retirement Price xx – exclude accrued interest
Carrying Amt (xx)
G/L on Retirement xx – reported in PL
COMPOUND FINANCIAL INSTRUMENT
Residual Approach COMMON FORMS
Bonds (Liab) with Share Convertible Bonds (bonds = liab)
Warrants (Equity) (bond conversion privilege = equity)
Issue Price xx
Bond at MV/FV/PV@EI (xx) - Share warrants give the holder the
Equity Component xx chance to purchase shares in the
future at a fixed price (exercise price)
- May be detached (sold separately) or
not

Issuance Issuance
Cash (net proceeds) XX Cash (net proceeds) XX
Discount on Bonds XX Discount on Bonds XX
Bonds Payable @ face value XX Bonds Payable @ face value XX
Premiums on Bond XX Premiums on Bond XX
OSWO XX Conversion Privilege XX

Exercise Conversion
Cash @ exercise price xx Bonds Payable xx
Share Capital @ par value xx Discount xx
Share Premium xx Share Capital @ par value xx
OSWO xx Share Premium xx
Share Premium xx Conversion Privilege xx
Share Premium xx
Expiration SW
OSWO xx Expiration
Share Premium xx Conversion Privilege xx
Share Premium xx

PROVISIONS PAS 37
Present RECOGNITION ASSET LIABILITY
obligation but 1. Present More than 95% Virtually Certain Provision Provision
uncertain timing Obligation 51% to 95% Probable Contingent Provision
and amount 2. Probable Asset
3. Measurable (disclosed to
Estimated
notes to FS)
liability
11% to 50% Possible Do nothing Contingent
Liability
(disclosed to
notes to FS)
10% and below Remote Do nothing Do nothing
MEASUREMENT Other Measurement
Best estimate 1. Risk and Uncertainty = amt of provision x risk
GR: Most likely outcome factor
XP: 2. Present Value if discounting is material
1. Large population (distributed 3. Future Events Sufficient and objective
probability) = expected value evidence
2. Range of Possibility = midpoint 4. Expected disposal of assets Not considered
5. Reimbursement Only if virtually certain
6. Change in Estimate prospectively
7. Future Operating Losses ❌
RECORDING GR:
Expenses/Losses xx
Estimated Liability xx

XP:
Asset xx
Estimated Liability xx
Example: restoration
COMMON TYPES OF PROVISIONS
Court Cases/Liabilities Premiums Liabilities Warranty
upon inflicting damage/harm, hindi Upon sale Upon sale
lang sa pag file ng kaso constructive constructive
legal/constructive

Premiums Liability Warranty Liability

Actual Beginning Actual Beginning
Accrual Accrual
Ending Ending

Arise upon sale Arise upon sale

Accrual = no. Of estimated prems to Accrual = warranty expense

be distributed x net cost = this is the
premiums expense

Actual = Actual distributed x net cost

Guarantee Decommissioning Restructuring

Default of party guaranteed Provision of law or contract Exist detailed formal plan
legal Legal And this action created a valid
Estimated cost of abandonments upon expectation to the affected party
exhaustion of asset = NCL Constructive

Initial Changes in scope or manner of

Asset xx business conduction
Est Decom Liability xx
Include only direct expenditure arising
Increase estimate from restructuring
Asset/IL xx
Est Decom Liability xx Excluded
1. Retaining cost/Relocating staff
Decrease estimate 2. Marketing/Advertising New
Est Decom Liability xx image
Asset xx 3. Investment in new system
EMPLOYEE BENEFITS PAS 19 or PAS19r
Includes BOD and mgt SPOT
Short term Emp Benefist
Post-employment
Other LT benefits
Termination Benefits

SHORT TERM EMPLOYEE BENEFITS

To be settled (wholly) within Examples: ST compensated Profit sharing & bonus
12 mos after the end of the 1. Salaries and Wages & Absences -constructive obligation,
th
reporting period contributions except 13 month pay
2. ST compensated Accumulating – carried
ACCOUNTING Absences forward, but maybe with Before Bonus, Before Tax
-straight forward, no 3. Profit sharing & bonus expiration = Gross Profit x Bonus %
actuarial assumptions w/in 12 mos  Vesting – can be
4. Medical/Housing encashed Before Bonus, After Tax
RECOGNTION Subsidy, etc.  Non-vesting – cannot = Profit x [(1 - Tax %]
As expense when incurred, be encashed [1/Bonus % - Tax %]
otherwise cost of another
asset After Bonus, Before Tax
Non-accumulating – = Profit – Profit
Unpaid = Accrued Expense cannot be carried forward, 1+Bonus%
Paid in Adv = Prepayment non-vesting automatic
Cost of Benefit = expense After Bonus, After Tax
when incurred, except when = Profit x [(1 - Tax %]
included as cost of another [1/Bonus % - 1+Tax %]
asset

POST-EMPLOYEMENT BENEFITS
Payable after Defined Contribution Plan Defined Benefit Plan Other Categories
completion of  Contributory Plan – both
employment, Fixed Contribution, Variable Variable Contribution, Fixed yee and yer contributes
but not because Benefit, the risk falls to variable Benefit, the risk falls to variable  Noncontributory – yer only
you’re not (employee) (employer) comtributes
terminated
 Funded Plan – thru trustee
DISCLOSURE
DISCLOSURE 1. Characteristics & risk  Unfunded – yer pay
1. Amount expensed 2. Reconciliations = FVPA, PV of DBO, directly to yee
2. DCP for key management effect of Asset Ceiling  Multiemployer Plans –
3. Show CSC, PSC, INT EXP&INC,
Personnel REMEASUREMNT maraming yer ang nag
4. Disaggregation of FVPA contribute sa common
5. Sensitivity anal of signi actuarial fund, can be DBP/DCP
DBO effects  Insured Benefits -
6. Description of Funding DBP/DCP directly or yer
7. Expected Contribution Plan next
pay deficiency
period
8. Maturity Profile DBO

Defined
Contribution - Simple & straightforward Required Contribution = Retirement Plan Expense
Plan - No actuarial assumptions
- Undiscounted unless Actual Contribution < Required Contri = Accrued Expense
beyond 12 months
Actual Contribution > Required Contri = Prepaid Expense
 Step 1 Determine It is the PV of expected future
Defined your DEFINED DBO payments required to settle the
Benefit Plan BENEFIT Actuarial Gain Beginning obligation resulting from defined
OBLIGATION DBO Benefits Paid Current Service Cost benefit plan.
CA of DBO Past Service Cost
Amount of Settled in advance Interest Cost
contribution is Actuarial Loss PV kasi at retirement pa
Ending
not necessarily
the amount to Projected Unit Credit Method –
be expensed credit: your liability increases as the
Current service cost = additional retirement benefit because yee renders services, projected
yee rendered service this year, increases each year, measured because involves actuarial
actuarial at PV kaya may interest cost = BB x discount rate
assumptions – assumptions
best estimate of Past Service Cost = change in DBO balance as amendment in
ultimate amt Plan or plan curtailment (reduction of # of yees covered)
that entity is
required to pay Actuarial Loss/Gain = every time may change in actuarial
assumptions affecting DBO balance. Loss = increase DBO, Gain
= decrease in DBO

Benefits Paid = nagbayad ka ng retirement benefit on due date

CA of DBO settled in advance = if nag early retirement =
Gain/Loss in Settlement
Step 2 Balance of any fund set aside to
Determine you FAIR FVPA settle retirement obligation
VALUE OF PLAN Beginning Benefits Paid
ASSET FVPA Actuarial Return Settlement Price PBO Dito kumukuha ng pangbayad sa
Contributions Settled in advance
retirement obligation/benefits
Ending
Assets are measured at FV
Actuarial Return
Comprised by:
1. Int income – dividends and incomes
1. LT asset – own mo
(BB x %)
2. Remeasurement – changes in FV of 2. Qualifying insurance policies –
tie up
shares of stock These are not available to creditors even in
bankruptcy, unless there’s surplus

Step 3 Not recorded in the books kasi ang

Determine the Deficit = DBO > FVPA retirement plans ay separate. Ang
SURPLUS/DEFICIT Surplus = DBO < FVPA sa Step 4 lang ang pinipresent sa
BS.
Step 4 Net defined benefit liability (accrued Net defined Benefit Asset
Compute the NET pension) = deficit (Prepaid pension) = surplus vs
DEFINED LIABILITY asset ceiling, whichever is lower
(FS presentation)
Step 5 Service Cost – PL Net Interest Cost – PL Remeasurements – OCI
Compute your
DEFINED BENEFIT Current Serv Cost xx Interest Expense xx Actuarial Gain (xx)
COST DBC this is Past Service Cost xx Interest Income (xx) Actuarial Loss xx
the amount to be Loss Early Settlement(xx) Interest on effect of Remeasure of FVPL xx
Gain Early Settlement xx Asset ceiling xx Remeasure of effect
expensed (SCI Service Cost xx
Service Cost xx Of asset ceiling xx
presentation) Remeasurement xx
Int on effect of AC =
difference of surplus and
AC
 TERMINATION BENEFITS
Result of Recognizes liability and expenses
1. Entity’s decision to If settled wholly within 12 months at the earlier of the following:
terminate before retirement Accounted as STEB, otherwise use
2. Yee’s decision to accept the requirements of other LT a. Entity can no longer
termination offer employee benefits withdraw offer of
termination as it was
already communicated
b. Entity recognizes the cost
of restructuring that
involves the payment of
termination benefits

OTHER LONG TERM EMPLOYMENT BENEFITS

Residual definition Account using the accounting for 1. LT Paid absences, such as
Defined Benefit Plan ling service and sabbatical
leave
DBC = PL, not in OCI 2. Jubilee and other LT
service
3. Profit sharing and bonus
4. Deferred compensation

INCOME TAXES PAS 12 applies to public and private entity, profit oriented
Accounting Income based Taxable Income based on DIFFERENCES
on PFRS – accrual basis NIRC – cash basis PERMANENT DIFFRENCE TEMPORARY
Items that are exclusive to DIFFERENCE
For external reporting For computation of income each other Included on either but with
tax payable timing difference
FORMULA examples
1. Nontaxable income  Taxable TD
Accounting Income xx Government Future taxable amounts
income, gov’t 1. Acc Inc > Tax Inc
Permanent Difference securities 2. Asset CA>Tax Base
Nondeductible Income xx 2. Income Subj to Final 3. Liab CA<Tax Base
Income Subj to Final Tax (xx) Tax Installment sales
. . 3. Nondeductible Prepaid Expense
Use future Reval Surplus
Income Subj to Tax xx enacted tax Expense
rate = Impairment Loss,
Temporary Difference deferred tax Goodwill, Fines and  Deductible TD
expense/ben Penalties Future deductible
Future Deductible Expenses xx = DTA
efit
Future Taxable Amount xx = (DTL) amounts
. . *tax base is the CA of asset or 1. Acc Inc < Tax Inc
Taxable Income xx = CTE –use current T% liab in the tax code 2. Asset CA<Tax Inc
TITE 3. Liab CA>Tax Base
PAS 12 requires the BS method Unearned Income
IS method is timing difference only Accrued Expense
CTE = current tax liability, net of tax credits and quarterly Bad Debt Expense
payments Difference in Depre Method
Expense and Benefit can be offset, DTL/DTA are separate
Initial Recognition DTL = all TTD Initial Recognition DTA = all DTD and
Except: NOLCO
1. Goodwill from BusCom Limitation: must be probable that there is
2. Initial Recog of Ass and Liab that neither affect AI/TI taxable income in the future.
3. Undistributed earnings on Sub, JV, Assoc (investor can control timing of
reversal
LEASES PFRS 16
Lease – is a contract that Right to control the use of Identified Asset Lease Term
conveys the right to use an the asset – when these are - Explicitly/implicitly - Non-cancellable period
asset to another party in met: stated to use the asset
exchange for a Portion of asset – if - Includes the option to
consideration. 1. Right to obtain physically distinct extend if reasonably
substantially all of the certain to exercise and
Lessor and Lessee. economic benefits, only Substantive substitution option to terminate if
Lessor must transfer the if with exclusive use rights –this must not reasonably certain not
ROUA to the Lessee 2. Right to direct the use of exist because this is to be exercised
Lessee pays an asset, how and for not an identified asset
fee/consideration what purpose

ACCOUNTING FOR LEASE - LESSEE

Types of Leases LEASE LIABILITY ROUA
Operating Lease Finance Lease/Capital Initial Initial – at cost
If: Lease PV of lease payments Initial Lease Liab xx
Fixed Lease Payments xx Lease payments made before
In form: Lease Variable Lease Pymts xx commencement date,
1. ST 12 mos/less, but if
Substance: Purchase of asset Guaranteed RV xx net of lease incentives xx
with a purchase option
it’s not operating lease in installment Purchase option xx Initial Direct Cost xx
Penalties, if certain xx PV of est dismantling,
2. Low value lease, based
ROUA xx Lease Liability xx if obliged xx
on judgment of CPA or
entity on its brand new Lease liability xx Cost of ROUA xx
Subsequently
value
GR: if lessee is a finance lease Amortized Cost
XP Subsequently
Cost Model, except if reval
@PV using implicit rate, or model, or FV model
incremental borrowing rate
Fixed Lease payment is net of Depreciated using
lease incentives UL – if may transfer of ownership,
or if may purchase option
reasonably certain to exercise

Shorter between UL & LT, esp if

UL is shorter than UL

Lease Term – if reverts back to

lessor
All these start at commencement
date
Other Accounting Issue
1. Separating the 2. Variable lease Initial Subseq 3. Guaranteed RV by the
components of the payments ROUA = CA Asset reverts back to lessor
rd
contract Included in LL = AC -lessee or 3 party related to lessee
Allocate the contract  Based on index – ROUA and Adjust for -lessor basta unrelated sa kanya
price to: depende sa LL changes 4.Lease Modifications
 Lease Component galaw ng market Separate lease, do not affect the
(use the relative index original ROUA & LL
standalone price) Not included, Exp as
and  Based on but exp incurred
 Non-lease sales/usage outright
component 5.Presentation
(aggregate stand Included in ROUA = CA ROUA = NCA; BS (separate or
along price)  In-substance Fixed ROUA and LL = AC combined/aggregated to another asset
Payments LL as fixed No changes LL = CL and NCL; separate or
payment combined/aggregated to another asset
 ACCOUNTING FOR LEASE - LESSOR
GR: Operating Lease XP: Finance Lease
If any of these are met:

1. Transfer of ownership to lessee at the end of term

2. Lessee has purchase option whose P<FV
3. Lease term represents major portion of the asset’s economic life = 75% of the life
4. PV ot minimum lease payments substantially all FV of asset = 90% of FV
a. Specialized asset that only lessee can use without major modification
b. If lessee cancels, losses will be borne by him, as well as FV fluctuations
c. Lessee can continue lease for a secondary period at lesser rent

A. Direct Finance Lease Sales Type Lease

Lessor is engaged in financing operation, Lessor is manufacturer or dealer, leases to
between financing entity and lessee sale product

Income: Income:
Interest Income Interest Income and Gross Profit
Gross Investment
Gross rentals Lease Payments xx Lease Payments xx
RV guaranteed/not as long as RV guaranteed/not as long as
Reverts back to lessor xx Reverts back to lessor xx
Gross Investment xx Gross Investment xx

Net Investment
Amount lessor Cost of Asset xx PV of lease payments xx
receivable presented in Initial Direct Cost by lessor xx PV of RV G/U as long as revert back xx
SFP Net Investment xx Net Investment xx

Unearned Int Income =gross inv – net investment =gross inv – net investment
Sales ❌ = LOWER of NET IV or FV
Cost of Sales ❌ = Cost of Asset + IDC
Gross Profit ❌ = Sales - COS
OPERATING LEASE
Does not transfer risk
and reward Lessor Lessee
Rental Payments Income on straight line basis, kahit uneven Expense on SL basis
average it
Initial Direct Cost Added to CA of the asset ❌
Includes Expensed over the lease term same basis as
commissions/legal income nan aka SL basis
fees/internal cots
Depreciation ✔ ❌
Lease Bonus Unearned Rent Income amortized over lease Prepaid Rent, paid by lessee as an incentive
term amortized over lease term
Security Deposit Liability of lessor depends if CL/NCL Receivable, Asset of the lessee
 SALE and LEASEBACK
Arrangement wherein and TRANSFER IS A SALE TRANSFER IS NOT A
entity sales a property and PFRS 15 PFRS 16 Purchase of Asset SALE
immediately leases it from Seller- lessee = Finance
the buyer Lease PFRS 9
Recognize ROUA & LL Lessor = FA
Seller becomes the lessee ROUA = proportional to the Lessee = FL
Buyer becomes the lessor rights retained by the seller
GAIN/LOSS = proportional
to the right transferred

LL = the same as the

Finance Lease in general

ROUA

SP = FV SP > FV SP < FV
Excess Additional financing Excess Prepaid rent
= CA x (LL/FV of asset) = CA x (LL less excess/FV of asset) = CA x (LL add excess/FV of asset)
alternative
Initial LL = Rental @ PV
Interest Retained = LL Interest Retained = LL - excess Interest Retained = LL + excess
ROUA = (Int Retained/FV of asset) x CA