ADMS 3595 Lecture Notes - Lecture 13: Current Liability, Current Asset, The Assets
11 May 2018
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SOLUTIONS TO EXERCISES
EXERCISE 13-1 (10-15 minutes)
(a) Classifications on balance sheet prepared under ASPE:
1.
Current liability; financial liability.
2.
Current asset.
3.
Current liability or long-term liability depending on term of
warranty; not a financial liability.
4.
Current liability; financial liability. A company would have an
obligation to pay cash to the bank for any overdraft and this
would result from the contractual agreement with the bank.
5.
Current liability; not a financial liability if this refers to income
tax withholdings, CPP and EI. This is a financial liability if it
refers to other withholdings of a contractual nature with
employees (union dues, for example).
6.
Current liability; financial liability.
7.
Current or noncurrent liability depending upon the time
involved; not a financial liability (if deposit will be returned then
it would be a financial liability).
8.
Current liability; not a financial liability.
9.
Current liability; not a financial liability.
10.
Current liability; not a financial liability.
11.
Current liability; financial liability.
12.
Note disclosure if assume not reasonably estimable and/or
likelihood of confirming future event cannot be determined. If
assume likely and reasonably estimable then current or
noncurrent liability depending upon the time involved; not a
financial liability. A personal injury suit that requires you to pay
is a result of a court order, not a contract – either written or
implied – between two parties.
13.
Current liability; financial liability.
14.
Current liability; financial liability.
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EXERCISE 13-1 (Continued)
15.
Note disclosure; not a financial liability. Dividends in arrears
have not been booked – so it cannot be a financial liability. It
becomes a financial liability only when declared by the
company. The contractual arrangement between a company
and its preferred shareholders is that they are entitled to a
dividend every year before the common get any distributions,
but they must be declared to be a liability at all.
16.
Separate presentation in either current or long-term liability
section; financial liability.
17.
Current liability; not a financial liability.
18.
Current or noncurrent liability depending upon the time
involved; not a financial liability.
19.
Current liability; financial liability.
(b) Changes if the balance sheet was prepared under IFRS:
(12) Under existing IAS 37: Note disclosure unless the likelihood of
needing future resources to settle the contingent liability is
remote. Note disclosure also required if amount not reliably
measurable (however, the standard indicates that it is only in
very rare circumstances that this would be the case). Under
proposed amendments to IAS 37: It must first be determined
whether the obligation exists at the reporting date. Liabilities
can arise only from unconditional (or non-contingent)
obligations. Uncertainty about the amounts that might be
payable in the future is taken into account in the measurement
of the liability, not its existence. If a liability is recognized, it is
measured, and it is the measurement that takes into account the
uncertainties that exist.
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EXERCISE 13-2 (20-25 minutes)
(a)
Sept. 1
Purchases ................................................................
50,000
Accounts Payable ................................
50,000
Oct. 1
Accounts Payable ................................
50,000
Notes Payable ................................
50,000
Oct. 1
Cash ................................................................
75,000
Notes Payable ................................
75,000
(b)
Dec. 31
Interest Expense ................................
1,000
Interest Payable ................................
1,000
($50,000 X 8% X 3/12)
Dec. 31
Interest Expense ................................
1,500
Notes Payable ................................
1,500
[($81,000 – $75,000) X 3/12]
(c)
(1)
Note payable
$50,000
Interest payable
1,000
$51,000
(2)
Note payable
$75,000
Interest accrued
1,500
$76,500
(d)
Oct. 1/15
Interest Expense * ................................
3,000
Interest Payable ................................
1,000
Notes Payable ................................................................
50,000
Cash ................................................................
54,000
*($50,000 X 8% X 9/12)
Oct. 1/15
Interest Expense ................................
4,500
Notes Payable ................................
4,500
[($81,000 – $75,000) X 9/12]
Notes Payable ................................................................
81,000
Cash ................................................................
81,000
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Exercise 13-1 (10-15 minutes) (a) classifications on balance sheet prepared under aspe: Current liability or long-term liability depending on term of warranty; not a financial liability. A company would have an obligation to pay cash to the bank for any overdraft and this would result from the contractual agreement with the bank. Current liability; not a financial liability if this refers to income tax withholdings, cpp and ei. This is a financial liability if it refers to other withholdings of a contractual nature with employees (union dues, for example). Current or noncurrent liability depending upon the time involved; not a financial liability (if deposit will be returned then it would be a financial liability). Current liability; not a financial liability: current liability; not a financial liability, current liability; financial liability, note disclosure if assume not reasonably estimable and/or likelihood of confirming future event cannot be determined.
