Test Bank for Intermediate Accounting, Volume 2, 13th Canadian EditionDonald E. Kieso

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CHAPTER 13 NON-FINANCIAL AND CURRENT LIABILITIES CHAPTER STUDY OBJECTIVES 1. Understand the importance of non-financial and current liabilities from a business perspective. Cash flow management i ... s a key control factor for most businesses. Taking advantage of supplier discounts for prompt payment is one step companies can take. Control of expenses and related accounts payable can improve the efficiency of a business, and can be particularly important during economic downturns. 2. Define liabilities, distinguish financial liabilities from other liabilities, and identify how they are measured. Liabilities are defined as an obligation of an entity arising from past transactions or events that are settled through a transfer of economic resources in the future. The entity should have little (or no) ability to avoid the duty or responsibility. Financial liabilities are a subset of liabilities. They are contractual obligations to deliver cash or other financial assets to another party, or to exchange financial assets or liabilities with another party under conditions that are potentially unfavourable. Financial liabilities are initially recognized at fair value, and subsequently either at amortized cost or fair value. ASPE does not specify how non-financial liabilities are measured. However, unearned revenue is generally measured at the fair value of the goods or services to be delivered in the future, while others are measured at the best estimate of the resources needed to settle the obligation. Under IFRS, non-financial liabilities other than unearned revenue are measured at the best estimate of the amount the entity would rationally pay at the date of the SFP to settle the present obligation. 3. Define current liabilities and identify and account for common types of current liabilities. Current liabilities are obligations that are payable within one year from the date of the SFP or within the operating cycle if the cycle is longer than a year. IFRS also includes liabilities held for trading and any obligation where the entity does not have an unconditional right to defer settlement beyond 12 months after the date of the SFP. There are several types of current liabilities. The most common are accounts and notes payable, and payroll-related obligations. 4. Identify and account for the major types of employee-related liabilities. Employee-related liabilities include (1) payroll deductions, (2) compensated absences, and (3) profit-sharing and bonus agreements. Payroll deductions are amounts that are withheld from employees and result in an obligation to the government or another party. The employer’s matching contributions are also included in this obligation. Compensated absences earned by employees are company obligations that are recognized as employees earn an entitlement to them, as long as they can be reasonably measured. Bonuses based on income are accrued as an expense and liability as the income is earned. Test Bank for Intermediate Accounting, Thirteenth Canadian Edition 13-2 Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 5. Explain the recognition, measurement, and disclosure requirements for decommissioning and restoration obligations. A decommissioning, restoration, or asset retirement obligation (ARO) is an estimate of the costs a company is obliged to incur when it retires certain assets. It is recorded as a liability and is usually long-term in nature. Under ASPE, only legal obligations are recognized. They are measured at the best estimate of the cost to settle them at the date of the SFP, and the associated cost is included as part of the cost of property, plant, and equipment. Under IFRS, both legal and constructive obligations are recognized. They are measured at the amount the entity would rationally pay to be relieved of the obligation, and are capitalized as part of property, plant and equipment or to inventory, if due to production activities. Over time, the liability is increased for the time value of money and the asset costs are amortized to expense. Entities disclose information about the nature of the obligation and how it is measured, with more discl [Show More]

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