Pertemuan 9

1 Desember 2012

CURRENT LIABILITIES, PROVISIONS AND CONTINGENCIES

Introduction

• Liabilities as a present obligation of a company arising from past events, the settlement of which is expected to result in an outflow from the company of resources, embodying economic benefits

Current Liabilities

• Classified as current if one of two conditions exists:

– The liability is expected to be settled within its normal operating cycle

– The liability is expected to be settled within 12 months after the reporting date

Jenis

• Account payable • Notes payable • Current maturities of long term debt • Short term obligation expected to be refinanced • Dividends payable • Customer advances and deposits • Unearned revenues • Sales taxes payable • Income taxes payable • Employee related liabilities

Notes Payable

• Written promises to pay certain sum of money

• May be classified as short or long term depending on the payment due date

• Interest bearing note

• Zero interest bearing note – Recorded at present value

• Journal – Issuing notes

– Recognize interest accrued

– Interest + principle payment

Current Maturities of Long Term Debt

• When only a part of a long term debt is to be paid within the next 12 months, the company reports the maturing position of long term debt as a current liability

• Also, company should classify as current for any liability that is due on demand or will be due on demand within a year.

• Exclude: – Retired by non current assets – Refinanced – Converted to ordinary shares

Short Term Obligations Expected to be Refinanced

• Generally we exclude short term obligations from current liabilities if they were expected to be refinanced

• Refinancing criteria:

– It must intend to refinance the obligation on a long term basis

– It must have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date

LO 2 Explain the classification issues of short-term

debt expected to be refinanced.

Short-term obligation A: Hendricks has a $50,000 short-term obligation due

on March 1, 2011. The CFO discussed with its lender whether the payment

could be extended to March 1, 2013, provided Hendricks agrees to provide

additional collateral. An agreement is reached on February 1, 2011, to

change the loan terms to extend the obligation’s maturity to March 1, 2013.

The financial statements are authorized for issuance on April 1, 2011.

Liability of

$50,000

Dec. 31, 2010

Statement

Issuance

Apr. 1, 2011

Liability due

for payment

Mar. 1, 2011

Refinance

completed

Feb. 1, 2011

Example

LO 2 Explain the classification issues of short-term

debt expected to be refinanced.

Short-term obligation B: Hendricks also has another short-term obligation of

$120,000 due on February 15, 2011. In its discussion with the lender, the

lender agrees to extend the maturity date to February 1, 2012. The

agreement is signed on December 18, 2010. The financial statements are

authorized for issuance on March 31, 2011.

Refinance

completed

Dec. 18, 2010

Statement

Issuance

Mar. 31, 2011

Liability due

for payment

Feb. 15, 2011

Liability of

$120,000

Dec. 31, 2010

Example 2

Dividends Payable

• Cash dividend payable current liability

• Preference dividend in arrears bukan current liability

• Share dividends bukan current liability

Dillons Corporation made credit sales of $30,000 which are subject to 6% sales tax.

The corporation also made cash sales which totaled $20,670 including the 6% sales

tax. (a) prepare the entry to record Dillons’ credit sales. (b) Prepare the entry to record

Dillons’ cash sales.

LO 2

Accounts receivable 31,800

Sales 30,000

Sales tax payable ($30,000 x 6% = $1,800) 1,800

Cash 20,670

Sales ($20,670 1.06 = $19,500) 19,500

Sales tax payable 1,170

Sales Tax Payable

collect sales taxes or value-added taxes (VAT) from customers

Employee Related Liabilities

• Payroll Deductions

– PPh 21 Payable

– JHT Payable

– JKK Payable

• Compensated Absences

• Bonuses

PROVISIONS

Introduction

• A liability of uncertain timing or amount (estimated liability) – It possess greater uncertainty than other liabilities

• Common types: – Lawsuits

– Warranties

– Premiums

– Environmental

– Onerous contracts

– Restructuring

Lawsuits

• Consider the following factors

– The time period

• The cause of litigation must have occurred on or before the date of financial statements

– The probability

• If the probability is more than 50 percent, provision is recognized

– The ability to make a reasonable estimate

Jurnal Lawsuit loss 900,000

Lawsuit liability 900,000

Warranty Liabilities

• Warranty and guarantee entail future costs (post sale costs) companies should recognize this liability in the account if they can reasonable estimate it

• Two methods of accounting for warranty costs

– Cash Basis

• Expenses as incurred does not record warranty liability

– Accrual Basis

• Expense warranty approach

• Sales warranty approach

Expense Warranty Approach

• Charge operating costs to operating expense in the year of sale

• Jurnal penjualan

• Jurnal pengakuan (accrue) warranty liability

• Jurnal klaim warranty (di tahun berikutnya)

Cash XXX

Sales XXX

Warranty Expense XXX

Warranty Liability XXX

Warranty Liability XXX

Cash, inventory or supplies XXX

Sales Warranty Approach

• Warranty is sold separately from the product

• Companies defer revenue on the sale of the extended warranty

• Jurnal penjualan produk

• Jurnal klaim

• Jurnal pengakuan keuntungan (warranty expires)

Cash XXX

Sales Unearned Warranty revenue

XXX XXX

Warranty Expense XXX

Cash, Inventory or Supplies XXX

Unearned Warranty Revenue XXX

Warranty Revenue XXX

Premium and Coupons

• Companies offer premium and coupon to stimulate sales

• The company then charges the cost of premiums offers to Premium Expenses

• It credits the outstanding obligations to an account titled Premium Liability

Examples

• Fluffy Cakemix Company offered its customers a large non-breakable mixing bowl in exchange for 25 cents and 10 boxtops. The mixing bowl costs Fluffy Cakemix Company 75 cents, and the company estimates that customers will redeem 60 percent of the boxtops. The premium offer began in June 2011 and resulted in the transactions journalized below. Fluffy Cakemix Company records purchase of 20,000 mixing bowls as follows.

Inventory of Premium Mixing Bowls 15,000

Cash 15,000

LO 4

Illustration: The entry to record sales of 300,000 boxes of cake mix

at 80 cent would be:

Cash 240,000

Sales 240,000

300,000 x .80 = $240,000

Fluffy records the actual redemption of 60,000 boxtops, the receipt

of 25 cents per 10 boxtops, and the delivery of the mixing bowls as

follows.

Cash [(60,000 / 10) x $0.25] 1,500

Premium Expense 3,000

Inventory of Premium Mixing Bowls 4,500

Computation: (60,000 / 10) x $0.75 = $4,500

Illustration: Finally, Fluffy makes an end-of-period adjusting entry for

estimated liability for outstanding premium offers (boxtops) as

follows.

Premium Expense 6,000

Premium Liability 6,000

LO 4

Environmental Provisions

• A company initially measures an environmental liability at the best estimate of its future costs. Alternatively, companies may use present value techniques to estimate fair value

• Companies allocate the cost of the asset to expense over the period

• In addition, company must accrue interest expense each period

• Pengakuan provisi

• Depresiasi

• Accrue beban bunga

Drilling platform 620,920

Environmental liability 620,920

Depreciation expense ($620,920 / 5) 124,184

Accumulated depreciation 124,184

Interest expense ($620,092 x 10%) 62,092

Environmental liability 62,092

Contingent Liability

• Are not recognized, because:

– A possible obligation

– Present obligation for which it is not probable that payment will be made

– Present obligation for which a reliable estimate of the obligation cannot be made