Exam 10: An Overview of Accounting for Liabilities

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.

Melville Ltd received a material claim for damages from a customer for not delivering ordered goods on time.The customer insists that Melville Ltd's late delivery resulted in significant losses to the customer.Melville Ltd admits to the delay but disputes the material damages being claimed.What is the appropriate accounting treatment for the claim that is in accordance with AASB 137?

Discuss the necessary conditions prescribed in AASB 137 Provisions,Contingent Liabilities and Contingent Assets to recognise provisions.Illustrate how these conditions are satisfied in a product warranty example.

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

A guarantee provided to a financier for a loan taken out by another entity,where default on that loan is uncertain as at the reporting date,is an example of a contingent liability.

The fact that a preference share is redeemable:

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 provision shall be recognised when an entity may have a future obligation as a result of a past event.

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

When an entity's management resolves that the entity will offer to repair a defect it has recently discovered in one of its products,even though the nature of the defect is such that purchasers of the product would not expect the entity to do so:

In disclosing liabilities,a reporting entity:

Buderup Ltd issues $9 million in 12-year,6%,semi-annual coupon debentures.The rate of return required by the market is 10% per annum.What are the journal entries to record the first and second payments of interest assuming that Buderup uses the effective-interest method to amortise any discount or premium (rounded to the nearest dollar)?

In accordance with AASB 137 Provisions,Contingent Liabilities and Contingent Assets,which of the following is considered a contingent liability?

Examples of equitable or constructive obligations include:

Provisions are established to allow for future sacrifices such as repairs and maintenance of machinery and may be recognised as liabilities.

What is the appropriate treatment for convertible notes in accordance with AASB 132 Financial Instruments: Presentation?

Adopting the effective-interest method means that the balance of the debenture liability represents:

From the following extract of an amortisation schedule pertaining to a compound financial instrument,what is the effective-interest rate embodied in the instrument? Period Opening liability Effective interest Coupon rate Discount amortisation Balance of discount Net liability 0 736055 9263945 1 9263945 555837 500000 55837 680218 9319782 2 9319782 559187 500000 59187 621031 9378969 3 9378969 562738 500000 62738 558293 9441707

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

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