Chapter 4: property, plant and equipment

Chapter 4 Property, Plant and Equipment FINANCIAL ACCOUNTING 2 COURSE OUTLINE Course structure 4 credits 60 hours Theoretical session 46 Discussion 18 Reporting 5 Self study session 131 COURSE OBJECTI[.]

FINANCIAL ACCOUNTING 2

COURSE OUTLINE

COURSE OBJECTIVES

After studying this subject, you should be able to:

 Training students with well-defined practical knowledge, comprehensive theoretical knowledge about financial accounting At the same time, this module equips students with knowledge about managing and operating financial accounting in enterprises to apply the knowledge learned

to solve complex real-life situations related to financial accounting arising at the business

COURSE DESCRIPTION

understanding that students have gained in “Financial Accounting 1” Financial Accounting 2 is the application of accounting principles in studying specific accounting in a business and also provides specialized knowledge of financial accounting such as current liabilities and contingencies, long term liabilities, stockholders’ equity, investments, revenue and the preparation of financial statements.

Contingencies.

Chapter 8: Long-Term Liabilities

Chapter 9: Stockholders’ Equity

Chapter 10: Investments

Chapter 11: Revenue

Chapter 12: Financial statements

with Intermediate accounting, 2004, McGraw-Hill.

+ www.ifrs.org, International Financial Reporting Standards

+ Kieso, Douglas W Fundamentals of intermediate accounting,

Hoboken: John Wiley & Sons

+ Database, statista.com

Chapter 7:

Current Liabilities and Contingencies

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

 Explain a current liability, and identify the major types of current liabilities.

 Describe the accounting for notes payable.

 Explain the accounting for other current liabilities

 Explain the financial statement presentation and analysis of current liabilities

 Describe the accounting and disclosure requirements for contingent liabilities

 Understand how to presentation and Disclosure

7.1 Current Liabilities

7.1.1 Types of current liabilities

7.1.2 Accounting for current liabilities

7.1 Current Liabilities

- According to FASB, defined liabilities as “probable future sacrifices

of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.”

 Current liabilities are “obligations whose liquidation is reasonably expected to require use of existing resources properly classified as current assets, or the creation of other current liabilities.”

7.1 Current Liabilities

- According to FASB, defined liabilities as “probable future

sacrifices of economic benefits arising from present obligations of

a particular entity to transfer assets or provide services to other entities in the future as a result of past transac- tions or events.”

 Current liabilities are “obligations whose liquidation is

reasonably expected to require use of existing resources

properly classified as current assets, or the creation of other

current liabilities.”

7.1 Current Liabilities

7.1.1 Types of current liabilities

Some typical current liabilities:

SOURCE DOCUMENTS

Delivery notes

The delivery note is most often prepared with reference to the sales order.

Note: Good received note& Good delivery note

Invoice

An invoice (bill or tab) is a source document issued by a seller to a buyer,

relating to a sale transaction and indicating the products, quantities, and agreed prices for products or services the seller had provided the buyer.

7.1 Current Liabilities

7.1.2 Accounting for current liabilities

The main books of original entry are:

Books of original entry

Sales day book Petty cash book

Purchases day book The payroll

Cash book The journal

or 1/10, )

- Notes payable are written promises to pay a certain sum of money

on a specified future date They may arise from purchases,

financing, or other transactions

- Notes payable to banks or loan companies generally arise from cash loans

- Companies classify notes as short-term or long-term, depending

on the payment due date

- Notes may also be interest- bearing or zero-interest-bearing.

7.1 Current Liabilities

7.1.2 Accounting for current liabilities

Notes payable

DOUBLE ENTRY FOR INTEREST PAYABLE:

1 Increase interest expense

ISSUING NOTE PAYABLE:

1 Increase Cash/ Account payable

2.Increase LIABILITY note payable

REDEEMPTION OF NOTE PAYABLE:

1.Decrease Note Payable

7.1 Current Liabilities

7.1.2 Accounting for current liabilities

Current maturities of long-term debt

When only a part of a long-term debt is to be paid within the next 12 months, as in the case of serial bonds that it retires through a series of annual installments, the company reports the maturing portion of long- term debt as a current liability, and the remaining portion as a long- term debt.

7.1 Current Liabilities

7.1.2 Accounting for current liabilities

Short-term obligations expected to be refinanced

Short-term obligations are debts scheduled to mature within one yearafter the date of a company’s balance sheet or within its operating

cycle, whichever is longer Some short-term obligations are expected to be refinanced on a long-term basis These short-term

obligations will not require the use of working capital during the nextyear (or operating cycle)

stock-in the position of creditors stock-in the amount of dividends declared Because companies always pay cash dividends within one year of declaration (generally within three months), they classify them as current liabilities.

7.1 Current Liabilities

7.1.2 Accounting for current liabilities

Dividends payable

In case the joint stock company pays stock dividends (issuing additional

shares from undistributed after-tax profit), record: (trả cổ tức bằng cổ phiếu)

Dr Undistributed after-tax profit

Cr Capital contributed by owners – equity (par value)

Cr Equity surplus (the difference between the issue price is higher than the par value) (if any)

7.1 Current Liabilities

7.1.2 Accounting for current liabilities

Customer advances and deposits, unearned revenues

- Current liabilities may include returnable cash deposits received from

customers and employees Companies may receive deposits from customers

to guarantee performance of a contract or service or as guarantees to cover payment of expected future obligations

7.1 Current Liabilities

7.1.2 Accounting for current liabilities

Customer advances and deposits, unearned revenues

- Current liabilities may include returnable cash deposits received from

customers and employees Companies may receive deposits from customers

to guarantee performance of a contract or service or as guarantees to cover payment of expected future obligations

- How do these companies account for unearned revenues that they receive

before delivering goods or rendering services?

1 When a company receives an advance payment, it debits Cash, and credits a current liability account identifying the source of the unearned revenue

2 When a company recognizes revenue, it debits the unearned revenue account, and credits a revenue account

7.1 Current Liabilities

7.1.2 Accounting for current liabilities

Employee-related liabilities

 Companies also report as a current liability amounts owed to

employees for sala- ries or wages at the end of an accounting period In addition, they often also report as current liabilities the following items related to employee compensation

 1 Payroll deductions.

 2 Compensated absences

 3 Bonuses

7.2 Provisions

7.2.1 Definitions of provision

A provisions should be recognised:

When an entity has incurred a present obligation

When it is probable that a transfer of economic benefits

to settle it

When a reliable estimate can be made of the amount

involved

7.2 Provisions

7.2.2 Accounting for provision

When a business first sets up a provision, the full amount of the provision should be debited to the statement of profit or loss and credited to the statement of fin ncial position as follows.

DR Expenses (statement of profit or loss)

CR Provisions (statement of financial position)

7.2 Provisions

7.2.2 Accounting for provision

In subsequent years, adjustments may be needed to the a ount of the provision The procedure to be followed then is as follows:

(a)Calculate the new provision required.

(b)Compare it with the existing balance on the provision account (ie the balance b/f from theprevious accounting period).

(c)Calculate increase or decrease req ired

7.2 Provisions

7.2.2 Accounting for provision

In subsequent years, adjustments may be needed to the a ount of the provision The procedure to be followed then is as follows:

(a)Calculate the new provision required.

(b)Compare it with the existing balance on the provision account (ie the balance b/f from theprevious accounting period).

(c)Calculate increase or decrease req ired

7.2 Provisions

7.2.2 Accounting for provision

(i)If a higher provision is required now:

DR Expen es ( tatement of profit or loss)

CR Provisions (statement of financial position)

with the amount of the increase.

(ii)If a lower provision is needed now than before:

DR Provisions (statement of financial position)

CR Expenses (statement of profit or loss)

with the amount of the decrease.

7.4 Presentation and Disclosure

- The current liability accounts are usually presented as the first classification

in the liabilities and stockholders’ equity section of the balance sheet.

- Within the current liabilities section, companies may list the accounts in order

of maturity, in descending order of amount, or in order of liquidation preference.

- Detail and supplemental information concerning current liabilities should be sufficient to meet the requirement of full disclosure.

- If the loss is either probable or estimable but not both, and if there is at least a reasonable possibility that a company may have incurred a liability, it should disclose in the notes both the nature of the contingency and an estimate of the possible loss.