Exam 10: An Overview of Accounting for Liabilities

Dubbin Ltd issues $3 million in 5-year, 8 per cent, semi-annual coupon debentures. The rate of return required by the market is 6 per cent per annum. What is the journal entry to record the issue of the debentures (rounded to the nearest dollar)?

Which of the following provisions satisfy the requirements to be recognised as a liability under AASB 137?

Pearl Ltd issues $8 million in 5-year debentures that pay interest every 6 months at a coupon rate of 12 per cent per annum. The required market rate of return is 16 per cent per annum. What is the issue price of the debentures (rounded to the nearest dollar)?

Executory contracts are within the scope of AASB 137 "Provisions, Contingent Liabilities and Contingent Assets".

Spoton Co Ltd issues $5 million in 2-year, 8 per cent, semi-annual coupon debentures to the public. The market required rate of return is also 8 per cent. The money is received on application and the debentures are allotted on the same day: 30 June 2003. What are the journal entries to record (a) the receipt of funds and allotment of debentures on 30 June 2003, (b) the payment of interest on 31 December 2003 and (c) the redemption of the debentures on 30 June 2005?

Tissues and Co has elected to issue preference shares to the value of $220,000. Prior to the share issue the company has assets of $780,000, liabilities of $370,000 and equity recorded at $410,000. The terms of the share issue state that these shares are non-redeemable but a guaranteed cumulative dividend of 8 per cent of share value is payable. Calculate the debt-to-asset ratio immediately before and after the share issue:

In accordance with AASB 137 "Provisions, Contingent Liabilities and Contingent Assets", which of the following statements is correct?

One recognised approach to reducing the level of debt that has been adopted in the past was to:

The market will only pay a premium for debentures if the par value of those debentures is lower than the market interest rate:

The defining characteristic of a "provision" as opposed to other liabilities is that the existence of an obligation is uncertain:

A present obligation, as one of the criteria for recognising a liability, implies:

Examples of equitable or constructive obligations include:

The par or face value of a debenture is:

Entities are only required to record a liability if there has been a past transaction that has created a present obligation to another entity that is expected to result in an outflow of future economic benefits:

The interest that a debenture holder receives at the time of each payment made by the issuer, is:

A necessary condition to recognise a present obligation in the financial statements is that the identity of the party to whom the present obligation is owed must be known.

Which of the following statements is ?consistent with the positive accounting theory paradigm?

Convertible notes may be best described as having characteristics of both liabilities and bonds:

Where the change in the carrying amount of a liability is due to the impacts of using present values, the change shall be recognised as a(n):

A debenture will be issued at par value: