CA1: Introduction to Liabilities (True or False)

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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


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