LIABILITIES

LIABILITIES
Liabilities are the present obligations of an entity arising from past
transaction or events, the settlement of which is expected to result in
an outflow from the entity of resources embodying economic benefits.
INITIAL RECOGNITION
• When:
a. it is probable that an outflow of resources embodying
economic benefits will result from the settlement of a present
obligation; and
b. the amount of which the settlement will take place can be
measured reliably.
FINANCIAL LIABILITIES VS. NON-
FINANCIAL LIABILITIES
FINANCIAL LIABILITIES
• Under PFRS 9, financial liabilities are recognized on the Statement of
Financial Position when the entity becomes party to the contractual
provision of the instrument.
A financial liability is any liability that is:
a. a contractual obligation:
- to deliver cash or another financial asset to another
entity; or
- to exchange financial asset or financial liabilities with
another entity under condition that are potentially
unfavorable to other entity; or
b. a contact that will or may be settled in the entity’s own equity
instruments and is:
- a non-derivative for which the entity is or may be obliged
to deliver a variable number of entity’s own equity
instrument;
- a derivative that will or may be settled other than by the
exchange of a fixed amount of cash or another financial
asset for a fixed number of the entity’s own equity
instruments
NON-FINANCIAL LIABILITIES
• Other liabilities that did not meet the above requirements are NON-
FINANCIAL LIABILITIES.
CLASSIFICATION OF FINANCIAL LIABILITIES:
1. FL at amortized cost
2. FL at fair value through profit or loss :
(a. designated FL at FVTPL or
b. Held for trading).
3. FL that arise when a transfer of financial asset
does not qualify for derecognition or when the
continuing involvement approach applies
4. Financial guarantee contracts and commitments
 MEASUREMENT OF
FINANCIAL AND NON-
FINANCIAL LIABILITIES
WITH AVAILABLE FAIR VALUE:
Initial measurement Subsequent measurement

Either: Either:
FINANCIAL o FAIR VALUE o FAIR VALUE
LIABILITIES o FAIR VALUE MINUS o AMORTIZED COST
TRANSACTION
COSTS
Either: Either:
o BEST ESTIMATE o BEST ESTIMATE OR
OR AMOUNT AMOUNT NEEDED
NEEDED TO TO SETTLE THE
NONFINANCIAL SETTLE THE OBLIGATIONS, or
LIABILITIES OBLIGATIONS, or o MEASUREMENT
o MEASUREMENT BASIS REQUIRED
BASIS REQUIRED BY SPECIFIC PFRS
BY SPECIFIC PFRS
NON- AVAILABILITY OF FAIR VALUE
FOR FINANCIAL LIABILITIES
CATEGORY CHARACTERISTICS MEASUREMENT
Nominal interest rate
is NOT substantially FACE AMOUNT
different with market
INTEREST BEARING rate.
LIABILITITIES Nominal interest rate
is substantially PRESENT VALUE OF
different with market PRINCIPAL AND
rate. INTEREST PAYMENTS

NON-INTEREST LONG-TERM PRESENT VALUE OF

BEARING LIABILITIES PRINCIPAL
LIABILITIES PAYMENTS
RECLASSIFICATION OF FINANCIAL
LIABILITIES

• PFRS 9, paragraph 4.4.2, states that an entity

shall NOT reclassify a financial liability.
DERECOGNITION OF LIABILITIES
Extinguished only when:
o The obligation specified in the contract is DISCHARGED,
CANCELLED or it EXPIRES
o An exchange between an existing borrower and lender of debt
instrument with substantially different terms or substantial
modification of the terms of an existing financial liability of part
thereof.

GAIN OR LOSS ON DERECOGNITION is recognized in profit or loss.

FINANCIAL STATEMENT
REPRESENTATION

Current or Non-current?
CURRENT LIABILITIES
Classified as current if:
o It is expected to be settled within the entity’s
normal operating cycle, or
o It is expected to be settled within 12 months.
o It is held for trading.
o The entity has no unconditional right to defer
payment for atleast 12 months from the reporting
date.
NON-CURRENT LIABILITIES
Noncurrent liabilities are items
o Other than current liabilities
o Specifically required by a particular standard to
be classified in this category.
CLASSIFICATION OF LONG-TERM DEBT
FALLING DUE WITHIN ONE YEAR
(SETTLEMENT AND REFINANCING)
To be settled on maturity date.
CURRENT
The debtor has a discretion to refinance
for a period of at least 12 months from
the reporting date NONCURRENT
Original term
of a period
longer than To be refinanced after the reporting date CURRENT
twelve or for a period less than 12 months from (QUALIFY FOR
months the reporting date DISCLOSURE AS
NON-ADJUSTING
EVENTS.)
To be refinanced on or before the
reporting for a period of at least 12 NONCURRENT
months from the reporting date
 (BREACH OF PROVISION OF LOAN
ARRANGEMENT)
Required to be settled within 12 CURRENT
months.

Presence A grace period was granted after the CURRENT

of breach reporting date or for a period less (QUALIFY FOR
of than 12 months from reporting date. DISCLOSURE AS NON-
covenant/s ADJUSTING EVENTS.)

A grace period was granted on or NONCURRENT

before the reporting date for a period
at least 12 months from reporting
date.
TRADE ACCOUNTS PAYABLE
TRADE ACCOUNTS PAYABLE
Characteristics
Present obligation that are not supported by formal
Description promises to pay by the debtor. These obligations
normally arise from acquisitions of inventories to be
used in the normal operating cycle of the entity.
Recognition When ownership of goods are transferred to the
buyer .
Fair value, which is normally the invoice price of
Measuremen goods acquired and may or may be affected by
t related freight and cash discounts.
Presentation Normally included in the current liabilities section
under the heading “ Trade and other payables”.
 INITIAL MEASUREMENT
List or quoted price xx
Less; trade discounts, rebate and other similar items xx
Initial measurement ( gross method of recording purchases) xx
Less: (purchase discount) xx
Initial measurement (net method of recording purchases, xx
whether discount is taken or not)
EFFECTS OF FREIGHT CHARGES