CA1: Introduction to Liabilities (True or False)
If certain conditions relating to the borrower's financial situation are breached, the liability becomes payable on demand
True
One line item of liabilities in the statement of financial position is trade and other payables
True
If an entity has the right at the end of the reporting period to roll over an obligation for at least twelve months after the reporting period under an existing loan facility, the obligation is classified as current liability even if it would otherwise be due within a shorter period
False
Income Tax payable is an example of constructive obligation
False
Liabilities are past and future obligations of an entity to transfer an economic resource as a result of past events
False
Unearned revenue is normally classified as current liabilities in the income statement
False
Warranty liability is an example of estimated liabilities
True
A liability exists only if the party to whom the obligation is owed is specifically identified
False
A liability which is due to be settled within twelve months after the reporting date is a current liability even if the refinancing on long-term basis is completed on or before the reporting period
False
Accrued expenses are expenses already paid but not yet incurred
False
Accrued expenses are reported in the statement of financial position as noncurrent liabilities
False
All liabilities arise either from constructive obligations
False
All liabilities arise from contracts and law
False
Bank overdraft and credit balance of accounts receivable are reported as noncurrent liabilities
False
Bank overdraft must be deducted from other cash in bank account of an entity to be recognized as current liability
False
Current liabilities are expected to be settled within an entity's normal operating cycle provided the entity's normal operating cycle is shorter than one year
False
Declaration of share dividend requires recognition of a liability
False
Dividends payable in noncash assets does not give rise to liability recognition
False
Liabilities to be recognized in accounting books, the amount must always be definite
False
Liabilities to be recognized in accounting books, the creditors must always be identified
False
Liability is always payable in cash
False
Liability may be the result of past, present or events
False
Nontrade payable is classified as current liability if it can be settled within one year or normal operating cycle, whichever is longer
False
Normally, once goods and services are already received but payment will be made in the future, a liability is to be recognized in accounting books of the entity who provided these goods and services
False
Not all obligating events create a present obligation that gives rise to a liability recognition
False
Notes payable that arises from bank borrowing is classified as trade payable
False
Portion of long-term debts that are due within one year after the reporting date is still classified as noncurrent liability
False
Short-term liabilities are discounted at reporting date
False
Supplier's account with debit balance must be deducted first from other supplier's accounts with credit balance to classify as nontrade receivable
False
The liability that is due to be settled beyond twelve months after the reporting period is classified as current liability
False
To recognize liability, it is necessary to know the identity or the party (or parties) to whom the obligation is owed
False
Unearned revenue is a revenue that is earned but not yet collected
False
Estimated liability on lawsuit requires the best estimate to be recognized as liability in accounting books
True
If certain conditions relating to the borrower's financial situation are breached, the liability is now classified as current
True
Liabilities can be settled by paying cash, transfer of noncash assets or provide future services in the future
True
Liabilities may arise either from constructive or legal obligation
True
Liabilities may be settled by providing goods or services to customers
True
Liabilities that arise from law and contracts are legal obligations
True
Liability requires transfer of economic resources to be recognized
True
Noncurrent liabilities are initially measured at present value and subsequently measured at amortized cost
True
Obligations to pay money are the payables
True
Obligations to provide goods or services at some future dates are normally referred to as unearned income
True
One essential characteristic of a liability is that it arises from past transactions or events
True
Refundable deposit account is classified as liabilities in the statement of financial position
True
The amount of liability may be based on best estimate
True
The past event that leads to a legal or constructive obligation is called the obligating event
True
There is no accounting liability recognition if there is no transfer of cash or noncash assets nor without performance of services at some future date
True
To classify as current liability, the entity does not have the right at the end of the reporting period to defer its settlement for at least twelve months after the reporting period
True
Trade payables include accounts payable and notes payable
True
An essential characteristic of a liability is that the entity has a future obligation
False
All liabilities are conceptually initially measured at present value
True
Amounts withheld from employees for taxes and contributions to SSS, Philhealth and PAGIBIG are liabilities of the withholding agent
True
An example of constructive obligation is the decommissioning liability
True
An obligation can meet the definition of a liability even if the probability of a transfer of an economic resource is low
True
An obligation may be legally enforceable as a consequence of a binding contract or statutory requirement
True
Bank overdraft and credit balance of accounts receivable are non-trade payables
True
Borrowing money from a bank result from a contractual requirement that requires liability recognition
True
Credit balance of accounts receivable and accounts payable are classified as current liabilities
True
Current liabilities include financial liabilities held for trading and other nontrade payables due within one year
True
Declaration of cash dividend requires recognition of a liability
True
Estimated liabilities are obligations which exist at the end of reporting period although their amount is not definite
True
A liability which is due to be settled beyond twelve months after the reporting date is noncurrent liability
True
A liability which is due to be settled within twelve months after the reporting date but refinancing on long-term basis is completed on or before the reporting period is an adjusting event
True
A liability which is due to be settled within twelve months after the reporting date is a current liability even if an agreement to refinance or to schedule payment on long-term basis is completed after the reporting period and before the financial statements are authorized to issue
True
A retail store that has a long-standing policy of allowing customers to return merchandise within a 10 day-period is an example of constructive obligation
True
