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IA2-2

The document outlines the classification of various financial obligations, including accounts payable, advances to suppliers, and convertible bonds, based on the entity's discretion to defer settlement or refinance for at least 12 months. It also discusses the implications of breaching covenants on liabilities, the recognition and measurement of notes payable, and the treatment of deferred revenue. Additionally, it highlights the importance of fair value assessments and adjustments to accounts payable balances.

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Ashryle Salazar
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11 views

IA2-2

The document outlines the classification of various financial obligations, including accounts payable, advances to suppliers, and convertible bonds, based on the entity's discretion to defer settlement or refinance for at least 12 months. It also discusses the implications of breaching covenants on liabilities, the recognition and measurement of notes payable, and the treatment of deferred revenue. Additionally, it highlights the importance of fair value assessments and adjustments to accounts payable balances.

Uploaded by

Ashryle Salazar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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If entity has discretion to refinance or roll over an Advances to suppliers

obligation for at least 12 months after reporting Accounts payable


period – Noncurrent b. Accounts receivable in credit balance
Accounts receivable
If entity has unconditional right to defer settlement
Advances from customers
of liability for at least 12 months after reporting
c. Bank overdraft that cannot be offset
period. – Noncurrent
Cash in bank
Convertible bonds payable Bank overdraft

- bonds that can be converted into equity Chapter 2: Accounts and Notes Payable
securities.
- convertibility feature shall not be Accounts Payable
considered in classifying bonds payable as - arises from credit purchases, considered as a
current or noncurrent, shall assess period short-term financing.
of reporting date to maturity.
Note: Cash purchases or refunds does not affect A/P.
Covenants
Adjustments to accounts payable balance
- often attached to borrowing agreements
a. Unreleased, stale and postdated checks
which represents undertakings by the
- add back to accounts payable
borrower.
- restrictions on borrower. Cash in bank
Breach of covenants Accounts Payable
- liability becomes payable on demand. b. Premature or late recording of supplier’s
- liability = current, borrower does not have invoice.
unconditional right to defer settlement for Purchases/Other expense account
at least 12 months. Accounts Payable
- exc: noncurrent if lender agreed before end
Notes Payable
of reporting period to provide grace period
at least 12 months after that date. - maker (creates and signs promissory note)
- payee (whom the amount stated)
Grace period – a period w/in which the entity can
rectify the breach during which the lender cannot Initial recognition and measurement
demand immediate payment.
- Fair value less transaction costs incurred
Estimated liabilities
Interest bearing Noninterest bearing
- obligations exist at the end of reporting Fair Value = Face value Fair value = Present
period although amount is not definite. value using market rate
- either current or noncurrent.

Deferred revenue Stated rate – amount of interest maker shall pay in


addition to face amount of promissory note.
- income received but not earned
- current if realizable w/in one year. Market rate – general prevailing rate regardless
whether note is interest bearing or not.
Other items to be considered (AJE)
PV of single PV of Ordinary PV of Annuity
a. Accounts payable in debit balance payment Annuity Due

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