中級會計(jì)學(xué)英文版課件：ch11 Current Liabilities and Contingencies

1、Copyright 2014 Pearson Canada Inc.Chapter 11Current Liabilities and Contingencies 11- 111- 2L.O. 11-1. Describe the nature of liabilities and differentiate between financial and non-financial liabilities.L.O. 11-2. Describe the nature of current liabilities and account for common current liabilities

2、 including provisions. L.O. 11-3. Describe the nature of contingent assets and liabilities and account for these items.L.O. 11-4. Describe the nature of commitments and guarantees and apply accrual accounting to them. LEARNING OBJECTIVESCopyright 2014 Pearson Canada Inc.A. INTRODUCTIONLiabilities ar

3、e obligations to provide cash /other assets or services to other partiesDetermining the amount to be paid to settle an obligation has its challengesMany factors can affect the value of the indebtednessCreditors, investors, suppliers, others interested in the amount of liabilities reportedCopyright 2

4、014 Pearson Canada Inc.11- 3B. DEFINITION, CLASSIFICATION, AND MEASUREMENT OF LIABILITIES (L.O. 11-1)Financial statements convey information between preparers and usersIFRS defines key terms used in preparing financial statementsDefining key terms enhances the quality of what is being communicatedEs

5、sential to understand key liabilities termCopyright 2014 Pearson Canada Inc.11- 41. Liabilities denedA liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outow from the entity of resources embodying economic benets. Copyright

6、 2014 Pearson Canada Inc.11- 52. Recognition To be included in financial statements:Precise amount of obligation not requiredA reliable estimate is required and should normally be availableLiabilities that are uncertain in amount and/or timing are provisions (e.g. warranty costs)Copyright 2014 Pears

7、on Canada Inc.11- 63. Financial and non-financial liabilities Financial liability - a contractual obligation to deliver cash or other nancial assets to another partyNon-nancial liability meets liability criteria but is not contractual.Typically settled through the delivery of goods or provision of s

8、ervices (unearned revenues, warranty liabilities)Liabilities established by legislation (such as income taxes payable) are non-financial liabilities - not contractual in natureCopyright 2014 Pearson Canada Inc.11- 7Financial liabilities : - Initially measured at fair value - Subsequently measured at

9、 amortized cost - If held for trading, such as derivatives, then measured at fair value Non-financial liabilities - measured using best estimate at balance sheet dateFinancial and non-financial liabilities (continued) Copyright 2014 Pearson Canada Inc.11- 8Why distinguish between financial and non-f

10、inancial liabilities?Some financial liabilities measured at fair value vs. amortized costFinancial and non-financial liabilities (Continued)Copyright 2014 Pearson Canada Inc.11- 94. Current versus non-current liabilitiesCurrent expected to be settled within one year of the balance sheet date or norm

11、al operating cycle Held-for-trading (if any) is presented as currentPresent current and non-current separatelyCopyright 2014 Pearson Canada Inc.11- 105. MeasurementMeasurement normally based on nature of obligationHeld for trading initially and subsequently measure at fair valueOther Financial initi

12、ally at fair value less transaction costs subsequent to acquisition at amortized costNon-financial depends on nature; may be best estimate or based on amount initially received Copyright 2014 Pearson Canada Inc.11- 11Check Point CP 11-2What are the three criteria of a liabilityAlso see Problem 11-5C

13、opyright 2014 Pearson Canada Inc.11- 12C. CURRENT LIABILITIES (L.O. 11-2) Copyright 2014 Pearson Canada Inc.11- 13Rest of chapter reviews three broad firm obligations. Common current liabilities are first discussed 1. Trade Payables (Accounts Payable)Normally for goods and services received/usedAccr

14、uals included for invoices “in transit”Part of normal course of business Not supported by a written promise to pay Reported in one totalAmount known with high degree of certaintyConsider Cut-off and Gross vs. Net methodsCopyright 2014 Pearson Canada Inc.11- 14Gross vs. Net Method of RecordingTrade P

15、ayablesCopyright 2014 Pearson Canada Inc.11- 15CHECKPOINT: CP 11-3From a theoretical perspective, should the gross method or net method be use to account for trade payables?Copyright 2014 Pearson Canada Inc.11- 162: Common Non-trade PayablesDo note arise from ordering goods / servicesAggregation and

16、 disclosure vary among firmsCommon ones include:Sales taxes payableIncome taxes payableDividends payableRoyalty fees payableCopyright 2014 Pearson Canada Inc.11- 17a: Sales Taxes PayableTotal sales taxes depends on provinceFederal Goods and Services Tax (GST)Provincial sales tax (PST)Or a combinatio

17、n, Harmonized Sales Tax (HST)See Exhibit 11-2（p.511） for rates at January 1, 2012Copyright 2014 Pearson Canada Inc.11- 18Sales Taxes Payable (continued)PST on internal use purchases generally not recoverableGST/PST/HST Payable Collected on eligible salesGST/PST/HST RecoverablePaid on eligible purcha

18、sesRemit net amounts to appropriate authorities See Exhibits 11-4 and 11-5 (p.513)Copyright 2014 Pearson Canada Inc.11- 19b: Income Taxes PayableTaxes on taxable income in chapter 16Amount owing is normally a current liabilityWithholdings from employees of federal and provincial income taxes also re

19、ported as current liabilitiesCopyright 2014 Pearson Canada Inc.11- 20c: Dividends PayableCash DividendsBecome a liability when declaredClassified as current liabilityStock DividendsNot a liability even when declaredNo future outflows of economic resources involvedRecorded through retained earnings a

20、nd other equity account(s)Dividends in Arrears on Preferred SharesUndeclared cumulative preferred dividends not recognized as a liability. No declaration, no liability.Require note disclosure Copyright 2014 Pearson Canada Inc.11- 21d: Royalty Fees PayableMost franchise agreements require franchisees

21、 to pay royalties to franchisors (such as Tim Hortons) based on salesOil and gas companies pay royalties to governmentsPublishing companies pay royalties to authorsUnpaid royalties are current liabilitiesCopyright 2014 Pearson Canada Inc.11- 22CHECKPOINT: CP 11-4Can a company report its HST receivab

22、le and payable as a net amount on the balance sheet? Why or why not?Copyright 2014 Pearson Canada Inc.11- 233. Notes payableSupported with a written promise to payUsed in credits over extended periodsCan be current, non-current, or combinationCan be interest bearing measured at fair value (Exhibits

23、11-6; 11-8d) p.515-517Can be non-interest bearing normally estimated using valuation techniques, such as discounted cash flows Copyright 2014 Pearson Canada Inc.11- 24CHECKPOINT: CP 11-5Why are short-term trade receivables normally valued at the original invoice amount rather than the fair value?Cop

24、yright 2014 Pearson Canada Inc.11- 254. Credit (Loan) FacilitiesPermits borrowing on an ongoing basis Referred to as a line of creditLimit and other terms(p.517) and conditions of credit agreement is documented Most credit facilities are due on demand“Due on demand” makes it a current liabilityDiscl

25、osure required in the notesCopyright 2014 Pearson Canada Inc.11- 26Warranty - a guarantee that products will be free from defects for a specied period, agreeing to x or replace them if they are faultyTwo types Manufacturers (included in product price)Sold separately (manufacturer or another party)5.

26、 WarrantiesCopyright 2014 Pearson Canada Inc.11- 27Warranty Embedded in ProductResults in a provision and an expense (year of sale)Measured using expected value techniquesSubsequent claims charged to the provisionOffset to inventory, labour or other expenses to satisfy the claimCan extend beyond a y

27、ear, but all charged in sale year Liability may be current or non-currentWarranties (Continued) Copyright 2014 Pearson Canada Inc.11- 28Warranty Embedded in Sales PriceAt Time of sale: No Entry for warranty expenseActual Warranty Costs Incurred Dr. Warranty Expense xxx Cr. Cash/Inventory/Payroll xxx

28、Year-end Adjusting entry(to ensure proper provision for year)Dr. Warranty Expense xxx Cr. Provision for Warranty Payable xxxAt Time of sale:Dr. Warranty expense xxx Cr. Provision for Warranty Payable xxx Actual Warranty Costs IncurredDr. Provision for Warranty Payable xxx Cr. Cash/Inventory/Payroll

29、xxx Year-end Adjusting entry No Entry (unless to cater for new information) A: Expense as Incurred and Adjust at year-endB: Provision at time of saleSame expense for year and same liability at year-end under either approachCopyright 2014 Pearson Canada Inc.11- 29At time of sale:Dr. Cash xxxCr. Sales

30、 Revenue xxx Cr. Unearned Warranty Revenue xxx As time passes (Expense incurred) Dr. Warranty Expense xxx Cr. Cash/Inventory/Payroll xxx&Dr. Unearned Warranty Revenue xxx Cr. Warranty Revenue xxxRevenue determined based on expense incurred or time elapsedWarranty Sold SeparatelyCopyright 2014 Pearso

31、n Canada Inc.11- 30CHECKPOINT CP:11-6What technique is used to estimate the required provision for warranties?Copyright 2014 Pearson Canada Inc.11- 31Arise from collection of assets not yet earnedAlso called: Unearned revenue; DepositsMay arise from customer loyalty programsCan have current/noncurre

32、nt componentsWhen “earned” unearned amount becomes revenue6. Deferred RevenuesCopyright 2014 Pearson Canada Inc.11- 32When cash is received:Dr. Cash xxxCr. Deferred Revenue xxxWhen revenue is earned (service / good provided)Dr. Deferred Revenue xxx Cr. Revenue xxx6. Deferred Revenues (continued)Copy

33、right 2014 Pearson Canada Inc.11- 33Incentives promote product or brand loyalty and repeated patronage of goods and servicesInclude:- Reward Points (groceries and pharmacies)- Frequent flyer points- Premiums, coupons7. Customer IncentivesCopyright 2014 Pearson Canada Inc.11- 34Three primary methods

34、of offering awards:Rewards supplied by the company itselfRewards supplied by a third partyRewards by choice either provided by the company itself or by a third partya. Customer Loyalty ProgramsCopyright 2014 Pearson Canada Inc.11- 35Loyalty programs give rise to future costs when points are redeemed

35、IFRIC 13, Customer Loyalty Programmes, provides guidanceReport as a separately identifiable component of salesAward credits measured at fair valueCustomer loyalty programs (Continued)Copyright 2014 Pearson Canada Inc.11- 36Third party awards: Recognize expense based on cost to purchase awards for th

36、e customersAt time of sale Dr. Cash /Accounts Receivable xxx Cr. Sales Revenue xxx& Dr. Loyalty Awards Expense xxx Cr. Liability for Loyalty Awards xxx Reduce liability as awards are used upCustomer Loyalty Programs (continued)Copyright 2014 Pearson Canada Inc.11- 37Awards by Entity: two distinct co

37、mponents revenue recognized when each component is earned the reward segment is earned when the customer redeems the awardAt time of sale:Dr. Cash/Accounts Receivable xxx Cr. Regular Revenue xxx Cr Unearned Revenue, AwardsxxxWhen awards are redeemedDr. Unearned Awards Revenue xxx Cr. Awards Revenue

38、xxxCustomer Loyalty Programs (continued)Copyright 2014 Pearson Canada Inc.11- 38Premiums goods/services/gift cards acquired by purchasing a vendors productCoupons- entitles consumer to a discounted price at point of purchaseRebates proof of purchase sent to manufacturer who sends customer agreed-upo

39、n amountb. Premiums, Coupons and RebatesCopyright 2014 Pearson Canada Inc.11- 39Premiums accounting similar to customer loyalty programsPremiums separated from regular revenueCost of premiums expensed as premiums are redeemed (See Exhibit 11-14)Premiums, Coupons and Rebates (continued)Copyright 2014

40、 Pearson Canada Inc.11- 40Accounting for coupons and rebates similar to accounting for warranties embedded in the product (Subsection C-5 above)Change in managements estimate for redemption is accounted for prospectivelyPremiums, Coupons and Rebates (continued)Copyright 2014 Pearson Canada Inc.11- 4

41、1What are the three common ways of offering loyalty awards?CHECKPOINT: CP 11-8Copyright 2014 Pearson Canada Inc.11- 42Those requiring special mention discussed in the following slides8. Other Current LiabilitiesCopyright 2014 Pearson Canada Inc.11- 43a: Obligations denominated in another currencyTra

42、nslate into functional currency with exchange rate on transaction dateTranslate obligation at period-end with exchange rate at periods end.Recognize gain or loss on translation in incomeOther Current Liabilities (continued)Copyright 2014 Pearson Canada Inc.11- 44b: Maturing debt to be refinancedIf r

43、efinancing agreement not in place by balance sheet date classify as a current liabilityDisclose refinancing arrangements made subsequent to balance sheet date but before issue dateCopyright 2014 Pearson Canada Inc.11- 45Other Current Liabilities (continued)c: Non-current debt in defaultTreat as a cu

44、rrent liabilityClassify as non-current if, before period-end, lender provides a grace period longer than 12 months from balance sheet dateIf lender extends terms after perion-end and before statements are issued, present as current and disclose grace period.Copyright 2014 Pearson Canada Inc.11- 46Ot

45、her Current Liabilities (continued)Copyright 2014 Pearson Canada Inc.11- 47Other Current Liabilities (continued)How are liabilities denominated in foreign currencies accounted for at the transaction date? At period end(s)?CHECKPOINT: CP-9Copyright 2014 Pearson Canada Inc.11- 48D. CONTINGENCIES (L.O.

46、 11-3)Contingency -an existing condition that depends on the outcome of one or more future eventsProbability of future outcomes crucial to accounting treatment of contingenciesThree ranges of probabilitiesProbableRemotePossibleCopyright 2014 Pearson Canada Inc.11- 49The Probability Continuum Copyrig

47、ht 2014 Pearson Canada Inc.11- 50Contingencies (continued)Issue: are contingent amounts measurable with sufficient reliability?IAS 37 paragraphs 2526 assert that only in extremely rare cases will the entity be unable to determine a range of possible outcomes used to estimate the extent of the obliga

48、tionCopyright 2014 Pearson Canada Inc.11- 511. Contingencies Involving Potential OutflowsResults in one of three outcomes:a. Recognition of a provisionb. Disclose as a contingent liability in notes to the financial statementsc. No action requiredCopyright 2014 Pearson Canada Inc.11- 52Contingencies

49、Involving Potential Outflows (continued) Copyright 2014 Pearson Canada Inc.11- 53Provision required when outflow is i. probable , andii. measurable in that case, expense and liability are accrued(See Exhibit 11-19a p.530) Range of outcomes? Use expected value techniques (weighted average) a. Recogni

50、tion of a ProvisionCopyright 2014 Pearson Canada Inc.11- 54b. Disclosure as a Potential LiabilityWhen: i. contingent outflow is not probable, or ii. future outflows cannot be measured reliably,then; Disclose a contingent liability in the notes.(Cells 2, 5, and 4 of Exhibit. 11-18)(Also see Exhibit 1

51、1-19b p.530)Copyright 2014 Pearson Canada Inc.11- 55c. No Action RequiredWhen: i. Probability of contingent outflow is remote, then; neither recognition nor disclosure warranted.(Cells 3, 6 of Exhibit. 11-18)(Also see Exhibit 11-19a)Copyright 2014 Pearson Canada Inc.11- 56Illustrations of accounting

52、 for contingenciesScenario 1Copyright 2014 Pearson Canada Inc.11- 57Illustrations of accounting for contingenciesScenario 211- 58Copyright 2014 Pearson Canada Inc.Illustrations of accounting for contingenciesScenario 3Copyright 2014 Pearson Canada Inc.11- 592. Contingencies Involving Potential Inflo

53、ws Stronger evidence required to recognize contingent inflows (prudence, conservatism). Results in one of three outcomes:a. Recognition as an asset ( 95% )b. Disclose as a contingent assetc. No action requiredCopyright 2014 Pearson Canada Inc.11- 60Contingencies Involving Potential Inflows (continue

54、d)Recognition as an assetOnly permitted if inflow is virtually certain (in practice 95% .)Contrasts recognition of contingent outflow as a provision when probable ( 50% )Copyright 2014 Pearson Canada Inc.11- 61b. Disclosure as a Contingent AssetWhen a contingent inflow is probable ( 50%), IFRS recom

55、mends disclosing a contingent asset, defined as:a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events Copyright 2014 Pearson Canada Inc.11- 62c. No Action RequiredWhen a contingent inflow is not probable (50%) Income statement focused: (contingent gains/losses) vs. IFRS contingent assets/liabilities (balance sheet).When amounts in a range are equally possible, ASPE recognizes lower amount and discloses maximum; IFRS uses