LIABILITIES Deferred Revenue or Unearned Income
Essential Characteristics: - Income already received but not yet earned.
(may nacollect na pera pero di pa nagagawa
The entity has a present obligation. (Dapat alam kung
service)
sino ang may utang)
- Service ang binibigay mo.
Legal (law and contracts) - May liability ka which is yung service then pag
Constructive nagawa mo na yon, liability is then converted to
revenue.
The obligation is to transfer an economic resource. (May
kailangan ka ibigay) Current Liabilities
Economic resource is an asset or - Unearned Interest Income
service. - Unearned Rental Income
- Unearned Subscription Revenue
The liability arises form a past event. Non-Curren Liabilities
- Long-term Service Contracts
Measurement - Long-term Leasehold Advances
1. Short-term Interest Bearing
Initial – Face Value
Subsequent – Face Value Accounting Entries
2. Short-term Non-Interest Bearing Liability Method
Initial – Face Value Cash xxx
Subsequent – Face Value Unearned Income xxx
3. Long-term Interest Bearing Unearned Income xxx
Initial – Face Value Income xxx
Subsequent – Face Value
Income Method
4. Long-term Non-Interest Bearing
Cash xxx
Initial – Present Value
Subsequent – Amortized Cost Income xxx
Current Liabilities Income xxx
- Expects to settle within entity’s operating cycle. Unearned Income xxx
- Held for the purpose of trading.
- Due to be settled within 12 months.
- Entity does not have an unconditional right to Gift Certificate
defer settlement of the liability for at least 12
- Voucher given as a present that is exchangeable
months after reporting period.
for a specified cash value of goods or service
Non-Current Liabilities from a particular place of business.
- If it did not achieve the definition of current Accounting Entries
liability.
Cash xxx
Gift Certificate Payable xxx
Refinancing – may utang ka before then nangutang ka
ulit para maipangbayad sa una mong utang. Gift Certificate Payable xxx
Sales xxx
Gift Certificate Payable xxx
Forfeited Gift Certificate (income) xxx
Refundable Deposits Estimated Liability - are obligations which exist at the
end of reporting period although their amount is not
- Consist of cash or property received from
definite.
customers but which are refundable after
compliance with certain conditions.
Accounting Entries Cash Rebate Program
Cash xxx Rebate – retrospective payment which ultimately
reduces the overall cost of a product/service at a later
Containers’ Deposit xxx
date.
Containers’ Deposit xxx
Rebate Expense xxx
Cash xxx
Estimated Rebate Liability xxx
Containers’ Deposit xxx
Estimated Rebate Liability xxx
Container xxx
Cash xxx
Cash Discount Coupon
Bonus
Cash Discount Coupon Expense xxx
- is a financial compensation that is above and
Estimated Coupon Liability xxx
beyond the normal payment expectations of its
recipient. Estimated Coupon Liability xxx
Bonus Computation Variations Cash xxx
Bonus is expensed as a certain percent of
income:
Customer Loyalty Program
1. Before bonus and before tax
B = % (NI) - Many entities use a customer loyalty program
2. After bonus but before tax to build brand loyalty, retain their valuable
B = % (NI - B) customers and of course increase sales volume.
3. After bonus and after tax - It generally designed to rewards customers for
B = % (NI - B - T); T = % (NI - B) past purchases and to provide them with
4. Before bonus but after tax incentives to make further purchases.
B = % (NI - T); T = % (NI - B)
Measurement: Award Credits – “Points”
Premiums Accounted as “separately component of initial
sale transaction”.
- are articles of value such as toys, dishes,
silverware and other goods given to customers Cash xxx
as a result of past sales or sales promotion Sales xxx
activities; return of product labels, wrappers,
and coupons. Unearned Revenue-points xxx
Accounting Entries
Premiums xxx Stand Alone Selling Price – the price at which an entity
would sell a promised good or service separately to a
Cash xxx customer.
Premium Expense xxx Recognition – Unearned Revenue (points) to Sales
Premiums xxx The amount of revenue recognized shall be
Premium Expense xxx based on the number of award credits have been
redeemed relative to the total number expected to be
Estimated Premium Liability xxx redeemed.
Third Party Operates Loyalty Program Interest Expense xxx
Cash xxx Decommissioning Liability xxx
Sales xxx Changes in Estimate
Remove from points xxx If increase:
Loyalty Program Expense xxx Equipment xxx
Cash xxx Decommissioning Liability xxx
If decrease:
Warranty Decommissioning Liability xxx
- A written guarantee, issued to the purchaser of Equipment xxx
an article by its manufacturer, promising to
Settlement
repair or replace it if necessary within a
specified period of time. Accumulated Depreciation xxx
Accounting for Warranty Equipment xxx
1. Expense as incurred approach Decommissioning Liability xxx
Warranty Expense xxx Cash xxx
Cash xxx
2. Accrued Approach Notes Payable
Warranty Expense xxx - An unconditional promise in writing made by
one person to another, signed by the maker,
Estimated Warrant Liability xxx
engaging to pay on demand or at a fixed or
Estimated Warrant Liability xxx determinable future time a sum certain in
money
Cash xxx
- to order or to bearer.
Measurement
Decommissioning Liability
Initially Subsequently
- Is an obligation to dismantle, remove, and Not designated FV + TC AC
restore an item of property, plant, and at P/L
equipment as required by law or contract. It is Designated at FV FV
also called as asset retirement obligation. P/L
Cost of PPE Fair Value – equal to the present value of the future
cash payment to settle the notes payable using the
- Purchase Price
market rate.
- Direct Attributable Cost
- Estimated Cost of Dismantling Issuance of Notes Payable
a. solely or cash = cash proceeds
Equipment xxx b. interest bearing note issued for property =
purchase price
Cash xxx
- purchase price: PV of the note = FV of the
Decommissioning Liability xxx property
c. non-interest bearing note issued for property =
Depreciation xxx
cash price of property
Accumulated Depreciation xxx
Equipment xxx Measurement
Discount on N/P xxx o Not designated at FVPL
N/P xxx Initially: FV-TC
Subsequently: amortized cost
N/P xxx
o Designated at FVPL
Cash xxx
Initially: FV
Discount on N/P xxx
Subsequently: FV
Transaction Cost = Bond Issue Cost (BIC)
Non-Interest Bearing Note Payable Lump Sum -
recognition of interest always happen thru amortization.
Accounting for Bonds
Fair Value Option of Reassuring Notes Payable:
a. Memorandum Method – gumawa ng
irrevocable designation
memorandum entry ang company noong
Change in Fair Value: authorized/pwede na mag-issue ng bonds
payable.
- Other Comprehensive Income (credit risk)
b. Journal Entry Method – noong nagkaroon
- Profit/Loss (residual amount)
authorization/pwede na mag-issue ng bonds,
ang ginawa nila is journal entry.
Bonds
Measurement
- Is a formal unconditional promise, made under
seal, to pay a specified sum of money at a
determinable future date, and to make periodic
interest payment at a stated rate until the
principal sum is paid.
Characteristics of Bonds
o Term Bonds – isang beses babayaran ang buong
principal
o Serial Bonds – series of payment ng capital
o Mortgage Bonds – security ay real property
o Collateral Trust Bonds – security ay shares or
investments in other companies
o Debenture Bonds – walang security
o Registered Bonds – kung sino yung nasa bond
indenture; siya makakareceive
o Coupon/Bearer Bonds – kung sino ang may
hawak ng bonds, siya makakareceive
o Convertible Bonds – bonds na nacoconvert
o Callable Bonds – bonds that can be retired even
before maturity date
o Guaranteed Bonds – may guarantor na siyang
magbabayad if ever hindi makabayad
o Junk Bonds – patapong bonds; wala nang sense
o Zero-Coupon Bonds – zero interest bonds
“A bond is evidenced by a certificate and the contractual
agreement between the issuer and investor is contained
in a document known as bond indenture”.
