SUBMITTED BY:
Eira Mariana C. Lopez
BSA 3-2
SUBMITTED TO:
Mr. Dennis Bayangos
1
, Table of Contents
CHAPTER 1 LIABILITIES 3
CHAPTER 2 PREMIUM AND WARRANTY LIABILITY 8
CHAPTER 3 ACCRUED LIABILITIES AND DEFERRED REVENUE 11
CHAPTER 4 PROVISION AND CONTINGENT LIABILITY 13
CHAPTER 5 BONDS PAYABLE 19
CHAPTER 6 EFFECTIVE INTEREST METHOD 24
CHAPTER 7 COMPOUND FINANCIAL INSTRUMENT 26
CHAPTER 8 NOTES PAYABLE 29
CHAPTER 9 DEBT RESTRUCTURE 31
CHAPTER 10 OPERATING LEASE 33
CHAPTER 11 FINANCE LEASE – LESSEE 36
CHAPTER 12 DIRECT FINANCING LEASE- LESSOR 39
CHAPTER 13 SALES TYPE LEASE- LESSOR 41
CHAPTER 14 SALE AND LEASEBACK 43
CHAPTER 15 ACCOUNTING FOR INCOME TAX 45
CHAPTER 16 POSTEMPLOYMENT BENEFITS 52
CHAPTER 17 OTHER EMPLOYMENT BENEFITS 67
CHAPTER 18 SHAREHOLDERS’ EQUITY 70
CHAPTER 19 RETAINED EARNINGS-DIVIDENDS 80
CHAPTER 20 RETAINED EARNINGS- APPROPRIATION AND QUASI-REORGANIZATION 83
CHAPTER 21 SHARE-BASED COMPENSATION- SHARE OPTIONS 87
CHAPTER 22 SHARE-BASED COMPENSATION – SHARE APPRECIATION RIGHTS 91
CHAPTER 23 BOOK VALUE PER SHARE 94
CHAPTER 24 BASIC EARNINGS PER SHARE 96
CHAPTER 25 DILUTED EARNINGS PER SHARE 99
2
,CHAPTER 1: LIABILITIES
1. Define liabilities.
Liabilities are present obligations of an entity arising from past transactions or events,
the settlement of which is expected result in an outflow from the entity resources
embodying economic benefits.
2. What are the essential characteristics of an accounting liability?
A. The liability is the present obligation of a particular entity.
B. The liability arises from past transaction or event.
C. The settlement of a liability requires an outflow of resources embodying economic
benefits.
3. Explain a present obligation.
A present obligation may be legal obligation or constructive obligation. An obligation is a
duty or responsibility to act or perform in a certain way.
Obligations may be legally enforceable as a consequence of binding contract or
statutory requirement.
Constructive obligations also give rise to liabilities by reason of normal business
practice, custom and a desire to maintain good business relations or act in an equitable
manner.
4. Explain a past event that leads to a present obligation.
The past event that leads to a legal or constructive obligation is known as the obligating
event.
The obligating event creates a present obligation because the entity has no realistic
alternative but to settle the obligation created by the event.
5. Explain outflow of future benefits to settle an obligation.
The obligation must be to pay cash, transfer noncash asset or provide service at some
future t ime.
3
, 6. Give specific examples of liabilities.
Examples of liabilities include the following:
A. Accounts payable to suppliers for the purchase of goods or services
B. Amounts withheld from employees for taxes and for contributions to the Social
Security System or to pension funds.
C. Accruals for wages, interest, royalties, taxes, product warranties and profit
sharing plans
D. Dividends payable in cash or noncash asset
E. Deposits and advances from customers, officers and shareholders
F. Debt obligation for borrowed funds – notes, mortgages and bonds payable
G. Income tax payable
H. Unearned revenue
7. Explain the initial measurement of liabilities.
PFRS 9, paragraph 5.1.1, provides that an entity shall measure initially a financial
liability at fair value minus, in the case of a financial liability not designated at fair value
through profit or loss, transaction costs that are directly attributable to the issue of
financial liability.
8. Explain transaction costs in relation to financial liabilities.
Transaction costs are incremental borrowing costs that are directly attributable to the
issue of a financial liability. An incremental cost is one that would not have been incurred
if the entity had not issued the financial liability.
9. What is the treatment of transaction costs?
Transaction costs are included in the initial measurement of a financial liability measured
at amortized cost. However, transaction costs are expensed immediately if the financial
liability is designated initially as at fair value through profit or loss.
10. What is the fair value of a financial liability?
Fair value is the price that would be paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Conceptually, the “fair value” of
the liability is equal to the present value of future cash payment to settle the obligation.
The term “present value” is the discounted amount of the future cash outflow in settling
an obligation using the market rate of interest.
4
Eira Mariana C. Lopez
BSA 3-2
SUBMITTED TO:
Mr. Dennis Bayangos
1
, Table of Contents
CHAPTER 1 LIABILITIES 3
CHAPTER 2 PREMIUM AND WARRANTY LIABILITY 8
CHAPTER 3 ACCRUED LIABILITIES AND DEFERRED REVENUE 11
CHAPTER 4 PROVISION AND CONTINGENT LIABILITY 13
CHAPTER 5 BONDS PAYABLE 19
CHAPTER 6 EFFECTIVE INTEREST METHOD 24
CHAPTER 7 COMPOUND FINANCIAL INSTRUMENT 26
CHAPTER 8 NOTES PAYABLE 29
CHAPTER 9 DEBT RESTRUCTURE 31
CHAPTER 10 OPERATING LEASE 33
CHAPTER 11 FINANCE LEASE – LESSEE 36
CHAPTER 12 DIRECT FINANCING LEASE- LESSOR 39
CHAPTER 13 SALES TYPE LEASE- LESSOR 41
CHAPTER 14 SALE AND LEASEBACK 43
CHAPTER 15 ACCOUNTING FOR INCOME TAX 45
CHAPTER 16 POSTEMPLOYMENT BENEFITS 52
CHAPTER 17 OTHER EMPLOYMENT BENEFITS 67
CHAPTER 18 SHAREHOLDERS’ EQUITY 70
CHAPTER 19 RETAINED EARNINGS-DIVIDENDS 80
CHAPTER 20 RETAINED EARNINGS- APPROPRIATION AND QUASI-REORGANIZATION 83
CHAPTER 21 SHARE-BASED COMPENSATION- SHARE OPTIONS 87
CHAPTER 22 SHARE-BASED COMPENSATION – SHARE APPRECIATION RIGHTS 91
CHAPTER 23 BOOK VALUE PER SHARE 94
CHAPTER 24 BASIC EARNINGS PER SHARE 96
CHAPTER 25 DILUTED EARNINGS PER SHARE 99
2
,CHAPTER 1: LIABILITIES
1. Define liabilities.
Liabilities are present obligations of an entity arising from past transactions or events,
the settlement of which is expected result in an outflow from the entity resources
embodying economic benefits.
2. What are the essential characteristics of an accounting liability?
A. The liability is the present obligation of a particular entity.
B. The liability arises from past transaction or event.
C. The settlement of a liability requires an outflow of resources embodying economic
benefits.
3. Explain a present obligation.
A present obligation may be legal obligation or constructive obligation. An obligation is a
duty or responsibility to act or perform in a certain way.
Obligations may be legally enforceable as a consequence of binding contract or
statutory requirement.
Constructive obligations also give rise to liabilities by reason of normal business
practice, custom and a desire to maintain good business relations or act in an equitable
manner.
4. Explain a past event that leads to a present obligation.
The past event that leads to a legal or constructive obligation is known as the obligating
event.
The obligating event creates a present obligation because the entity has no realistic
alternative but to settle the obligation created by the event.
5. Explain outflow of future benefits to settle an obligation.
The obligation must be to pay cash, transfer noncash asset or provide service at some
future t ime.
3
, 6. Give specific examples of liabilities.
Examples of liabilities include the following:
A. Accounts payable to suppliers for the purchase of goods or services
B. Amounts withheld from employees for taxes and for contributions to the Social
Security System or to pension funds.
C. Accruals for wages, interest, royalties, taxes, product warranties and profit
sharing plans
D. Dividends payable in cash or noncash asset
E. Deposits and advances from customers, officers and shareholders
F. Debt obligation for borrowed funds – notes, mortgages and bonds payable
G. Income tax payable
H. Unearned revenue
7. Explain the initial measurement of liabilities.
PFRS 9, paragraph 5.1.1, provides that an entity shall measure initially a financial
liability at fair value minus, in the case of a financial liability not designated at fair value
through profit or loss, transaction costs that are directly attributable to the issue of
financial liability.
8. Explain transaction costs in relation to financial liabilities.
Transaction costs are incremental borrowing costs that are directly attributable to the
issue of a financial liability. An incremental cost is one that would not have been incurred
if the entity had not issued the financial liability.
9. What is the treatment of transaction costs?
Transaction costs are included in the initial measurement of a financial liability measured
at amortized cost. However, transaction costs are expensed immediately if the financial
liability is designated initially as at fair value through profit or loss.
10. What is the fair value of a financial liability?
Fair value is the price that would be paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Conceptually, the “fair value” of
the liability is equal to the present value of future cash payment to settle the obligation.
The term “present value” is the discounted amount of the future cash outflow in settling
an obligation using the market rate of interest.
4
