LIABILITIES

“Anticipated losses arising from pending 2. NOTES

Example: PAYABLE –Note
Interest-Bearing Promise to
Issued
transactions” IFRS pay athat
Assume certain
Castlesum of money
National in a to lend
Bank agrees
specified
$100,000 future
on March 1, date.
2012, to Landscape Co. if
-Landscape signs
may arise a $100,000,
from 6 percent, four-
purchases,
month note. Landscape records the cash received
Anticipated losses financing, or other transactions
on March 1 as follows:
- means the losses have not yet
occurred; March 1
Pending transactions Cash 100,000
- Mean that the condition that Notes Payable 100,000
(To record issuance of 6%, 4-month note to Castle National Bank)
might cause the loss has also not
occurred. If Landscape prepares financial statements
semiannually
DEFINITION
“Probable future sacrifices of economic June 30
Interest Expense 2,000
benefit arising from present obligations Interest Payable 2,000
of a particular entity to transfer assets or (To accrue interest for 4 months on Castle National Bank note)
provide services to other entities in the
future as a result of past transactions or [($100,000 * 6% 4/12)]
events.”

CHARACTERISTICS
1. It is a present obligation that entails
settlement by probable future transfer or
use of cash, goods, or services.
2. It is an unavoidable obligation.
Zero-Interest-Bearing Note Issued (Interest is
still charged) the borrower receives in cash the present value
of the note.

3. The transaction or other event Landscape issues a $102,000, four-month, zero-

creating the obligation has already
occurred
IMPORTANT FEATURE
- the date on which they are
payable
CURRENT LIABLITIES
- Obligations whose liquidation is
reasonably expected to require
the use of existing resources
which is classified as current
assets or the creation of another
liabilities.
interest-bearing note to Castle National Bank. The
present value of the note is $100,000. Landscape
records this transaction as follows:
March 1
Cash 100,000
Discount on Notes Payable 2,000
Notes Payable 102,000
(To record issuance of 4-month, zero-interest-bearing note to Castle
National Bank)

1. ACCOUNTS PAYABLE –
Balances owed in the purchased
of goods and services.
- Arises when time between the
receipt and the payment lag.

1
LIABILITIES

3. CURRENT PORTION OF LONG

TERM DEBT - current liabilities
the portion of bonds, mortgage
notes and other long-term
indebtedness that matures within
the next fiscal year.

Exclude long-term debts maturing

currently as current liabilities if
they are to be:
1. Retired by assets accumulated
for this purpose that properly
have not been shown as current
assets,
2. Refinanced, or retired from the
proceeds of a new debt issue, or
3. Converted into capital stock.

4. SHORT-TERM OBLIGATIONS
EXPECTED TO BE
REFINANCED- Debts
schedule to mature within one
year or over its operating
cycle, whichever is longer.
Refinance on a long term
basis.
- “the accounting profession
generally supported the exclusion
of short term obligations from
current liabilities”