Current Liabilities
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Transcript of Current Liabilities
Pertemuan 9
1 Desember 2012
CURRENT LIABILITIES, PROVISIONS AND CONTINGENCIES
Introduction
• Liabilities as a present obligation of a company arising from past events, the settlement of which is expected to result in an outflow from the company of resources, embodying economic benefits
Current Liabilities
• Classified as current if one of two conditions exists:
– The liability is expected to be settled within its normal operating cycle
– The liability is expected to be settled within 12 months after the reporting date
Jenis
• Account payable • Notes payable • Current maturities of long term debt • Short term obligation expected to be refinanced • Dividends payable • Customer advances and deposits • Unearned revenues • Sales taxes payable • Income taxes payable • Employee related liabilities
Notes Payable
• Written promises to pay certain sum of money
• May be classified as short or long term depending on the payment due date
• Interest bearing note
• Zero interest bearing note – Recorded at present value
• Journal – Issuing notes
– Recognize interest accrued
– Interest + principle payment
Current Maturities of Long Term Debt
• When only a part of a long term debt is to be paid within the next 12 months, the company reports the maturing position of long term debt as a current liability
• Also, company should classify as current for any liability that is due on demand or will be due on demand within a year.
• Exclude: – Retired by non current assets – Refinanced – Converted to ordinary shares
Short Term Obligations Expected to be Refinanced
• Generally we exclude short term obligations from current liabilities if they were expected to be refinanced
• Refinancing criteria:
– It must intend to refinance the obligation on a long term basis
– It must have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date
LO 2 Explain the classification issues of short-term
debt expected to be refinanced.
Short-term obligation A: Hendricks has a $50,000 short-term obligation due
on March 1, 2011. The CFO discussed with its lender whether the payment
could be extended to March 1, 2013, provided Hendricks agrees to provide
additional collateral. An agreement is reached on February 1, 2011, to
change the loan terms to extend the obligation’s maturity to March 1, 2013.
The financial statements are authorized for issuance on April 1, 2011.
Liability of
$50,000
Dec. 31, 2010
Statement
Issuance
Apr. 1, 2011
Liability due
for payment
Mar. 1, 2011
Refinance
completed
Feb. 1, 2011
Example
LO 2 Explain the classification issues of short-term
debt expected to be refinanced.
Short-term obligation B: Hendricks also has another short-term obligation of
$120,000 due on February 15, 2011. In its discussion with the lender, the
lender agrees to extend the maturity date to February 1, 2012. The
agreement is signed on December 18, 2010. The financial statements are
authorized for issuance on March 31, 2011.
Refinance
completed
Dec. 18, 2010
Statement
Issuance
Mar. 31, 2011
Liability due
for payment
Feb. 15, 2011
Liability of
$120,000
Dec. 31, 2010
Example 2
Dividends Payable
• Cash dividend payable current liability
• Preference dividend in arrears bukan current liability
• Share dividends bukan current liability
Dillons Corporation made credit sales of $30,000 which are subject to 6% sales tax.
The corporation also made cash sales which totaled $20,670 including the 6% sales
tax. (a) prepare the entry to record Dillons’ credit sales. (b) Prepare the entry to record
Dillons’ cash sales.
LO 2
Accounts receivable 31,800
Sales 30,000
Sales tax payable ($30,000 x 6% = $1,800) 1,800
Cash 20,670
Sales ($20,670 1.06 = $19,500) 19,500
Sales tax payable 1,170
Sales Tax Payable
collect sales taxes or value-added taxes (VAT) from customers
Employee Related Liabilities
• Payroll Deductions
– PPh 21 Payable
– JHT Payable
– JKK Payable
• Compensated Absences
• Bonuses
PROVISIONS
Introduction
• A liability of uncertain timing or amount (estimated liability) – It possess greater uncertainty than other liabilities
• Common types: – Lawsuits
– Warranties
– Premiums
– Environmental
– Onerous contracts
– Restructuring
Lawsuits
• Consider the following factors
– The time period
• The cause of litigation must have occurred on or before the date of financial statements
– The probability
• If the probability is more than 50 percent, provision is recognized
– The ability to make a reasonable estimate
Jurnal Lawsuit loss 900,000
Lawsuit liability 900,000
Warranty Liabilities
• Warranty and guarantee entail future costs (post sale costs) companies should recognize this liability in the account if they can reasonable estimate it
• Two methods of accounting for warranty costs
– Cash Basis
• Expenses as incurred does not record warranty liability
– Accrual Basis
• Expense warranty approach
• Sales warranty approach
Expense Warranty Approach
• Charge operating costs to operating expense in the year of sale
• Jurnal penjualan
• Jurnal pengakuan (accrue) warranty liability
• Jurnal klaim warranty (di tahun berikutnya)
Cash XXX
Sales XXX
Warranty Expense XXX
Warranty Liability XXX
Warranty Liability XXX
Cash, inventory or supplies XXX
Sales Warranty Approach
• Warranty is sold separately from the product
• Companies defer revenue on the sale of the extended warranty
• Jurnal penjualan produk
• Jurnal klaim
• Jurnal pengakuan keuntungan (warranty expires)
Cash XXX
Sales Unearned Warranty revenue
XXX XXX
Warranty Expense XXX
Cash, Inventory or Supplies XXX
Unearned Warranty Revenue XXX
Warranty Revenue XXX
Premium and Coupons
• Companies offer premium and coupon to stimulate sales
• The company then charges the cost of premiums offers to Premium Expenses
• It credits the outstanding obligations to an account titled Premium Liability
Examples
• Fluffy Cakemix Company offered its customers a large non-breakable mixing bowl in exchange for 25 cents and 10 boxtops. The mixing bowl costs Fluffy Cakemix Company 75 cents, and the company estimates that customers will redeem 60 percent of the boxtops. The premium offer began in June 2011 and resulted in the transactions journalized below. Fluffy Cakemix Company records purchase of 20,000 mixing bowls as follows.
Inventory of Premium Mixing Bowls 15,000
Cash 15,000
LO 4
Illustration: The entry to record sales of 300,000 boxes of cake mix
at 80 cent would be:
Cash 240,000
Sales 240,000
300,000 x .80 = $240,000
Fluffy records the actual redemption of 60,000 boxtops, the receipt
of 25 cents per 10 boxtops, and the delivery of the mixing bowls as
follows.
Cash [(60,000 / 10) x $0.25] 1,500
Premium Expense 3,000
Inventory of Premium Mixing Bowls 4,500
Computation: (60,000 / 10) x $0.75 = $4,500
Illustration: Finally, Fluffy makes an end-of-period adjusting entry for
estimated liability for outstanding premium offers (boxtops) as
follows.
Premium Expense 6,000
Premium Liability 6,000
LO 4
Environmental Provisions
• A company initially measures an environmental liability at the best estimate of its future costs. Alternatively, companies may use present value techniques to estimate fair value
• Companies allocate the cost of the asset to expense over the period
• In addition, company must accrue interest expense each period
• Pengakuan provisi
• Depresiasi
• Accrue beban bunga
Drilling platform 620,920
Environmental liability 620,920
Depreciation expense ($620,920 / 5) 124,184
Accumulated depreciation 124,184
Interest expense ($620,092 x 10%) 62,092
Environmental liability 62,092
Contingent Liability
• Are not recognized, because:
– A possible obligation
– Present obligation for which it is not probable that payment will be made
– Present obligation for which a reliable estimate of the obligation cannot be made