1.
Essential characters for a liability
a. Arises from an obligating event
b. Settlement requires an outflow of resources embodying economic benefit
Except: identification of the payee
2. Characteristics of a liability
a. An obligation to provide goods and services in the future
b. An obligation that is estimated in amount
c. A note payable without specified maturity date
Except: the signing of a 3-year employment contract at a fixed annual salary
3. A current liability
a. Financial liabilities held for trading
b. Accrued operating expenses expected to be paid after 1 year
c. A loan obligation where the entity has an unconditional right to defer settlement of the
liability for 6 months after the end of the reporting period
Except: deferred tax liability expected to reverse within 6 months
4. A liability not part of the normal operating cycle of an entity should be classified as noncurrent
a. Financial liabilities that provide financing but are not due for settlement within 12 months
after the reporting period
5. Transaction costs are expenses immediately if the financial liability is designated as at fair value
through profit or loss
6. A currently maturing obligation is classified as noncurrent
Solution: a refinancing is completed after year-end but the entity has discretion to refinance as
of year-end.
7. Increases the balance of payable
a. Undelivered checks where the payee is a supplier of the entity
b. Goods received after year-end by the entity but recorded before the year-end
Exception: goods in transit from a supplier shipped FOB shipping point
8. Current liability in financial statement:
a. Some liabilities, such as trade payables, accruals for employees and the other operating
costs, are expected to be settled in more than 12 months after the reporting period.
9. A noncurrent liability
a. Unearned interest income related to noninterest bearing long-term note receivable
10. a. Non-financial liabilities are initially and subsequently measured at the best estimate of
amounts needed to settle those obligation
b. obligating events create either legal or contractual obligations
