How do we measure financial liability?

Liabilitites itself ang ideal measurement ay present value pero dahil nga merong mga liability
na for short term lang 1 yr or less, pag kicompute yung present value niya at yung face
amount napakaliit ng difference very immaterial yung difference that is why yungmga short
term laibiltites minemeasure na lang siya at face amount meaning kung magkano na lang
talaga yung utang. In general yun ang sa liabilities.However pano kung financial liability.
Syempre meron tayong initial measurement, so how do we measure initially sabi dito, fair
value minus transaction cost, idetermine muna yung fair value niya minus transaction cost
except yung financial liabilities ay classified as fairvalue thru profit or loss(FVPL) in which yung
transaction costs are expensed immediately. So ano ba yung mga transaction cost. So according
dito transaction costs include
1. Fees and commissions paid to agents, advisers, brokers and dealers.
2. Levies by regulatory agencies and securities exchange
3. Transfer taxes and duties
Ito yung mga directly attributable cost dun sa financial liability. So kung hindi sinabi sa problem
na classified siya as fvpl then by default it is measured at fair value less transaction cost
however kung kinaclassify yung financial liability at fvpl then initial measurement ay fair value
lang since transaction cost are expensed outright.
So per subsequent measurement meaning after the initial measurement, the next
measurement should be the amortized cost except again siya ay financial liability classified as
held for trading or siya ay designated, meaning in simpler terms yung financial liability classified
as fvpl. So kung yung financial liability is designated or held for trading then ang subsequent
measurement ay fair value pa din. Other than that, the rest ang gagamitin ay amortized cost

What is FAIR VALUE?

Were already aware na naman kung ano ang fair value so brief discussion lang tayo dito parang
refereshment lang . so fair value is the price market value expected to transfer for the liability
and accdg sa book a fair value of a financial liab is determined thru first
a) Quotation from an active market.
Whereas ang susunding amount is from the quatations made by by market makers, dealers and
even specialist in the market.
b) Present value of all principals and interest payments.
If the effect of time value of money is material then the amount of obligation shall be the present
value. Or also known as present discounted value, it is the value of an expected income stream
determined as of the date of valuation. and usually less than the future value
 So sab isa measurement ng financial liab na initially fair value or less transaction cost and
madedetermine nati ang amount ng fair value in order of priority if may nakaindicate na quoted
amount then ayun ang gagamitin nating amount if wala naman pero available naman yung present
value then yung yung amount na gagamitin natin. And if ever na available parehas yung dalawa then
from the order of priority quoted market price ang gagamitin natin as measurement.

AMORTIZATION TABLE OF LIABILITIES

Next naman ay itong amortization table since sa subsequent measurement amortized cost
naman daw yung gagamiting amount so pano natin yung makukuha.

DATE PAYMENT INTEREST AMORTIZATION CARRYING

EXPENSE VALUE
Issuance date/ Amount for Amount of Principal + Carrying
date of interest or interest Interest amount
payment principal or expense Payment –
both incurred Interest
expense

Payment represents the annual rental or fixed payment. Yung interest is equal to the
preceding present value times kunwari ang interest rate ay 12%. amortization naman is the
portion of the rental payment after deducting the interest thus one hundred k minus 36,448
equals 63,552. Thus and carrying value or amotized cost ay 24,178 nakuha siya from the
difference of present value less the amortization.
MEASUREMENT OF NON-FINANCIAL LIABILITIES
How to measure naman non-financial liability?
Sabi dito Non-financial liabilities are initially measured at the best estimate of the amounts.
Bakit best estimate kasi for example ng mga non-financial liability yan yung mga warranty
obligation, yung mga premium, yung hindi natin alam kung magkano talaga yung exact na
magagastos pag iaavail na kunwari yung warranty kaya imemeasure siya at best estimate.
However, if non financial siya like unearned revenue na sure ka naman sa amount na ibabayad
so face amount kaya sabi rin din or the measurement basis required by applicable standard. SO
lets see the examples
• Examples:
a) Obligations arising from statutory requirements example income tax payable
Diba pag meron namang net income and merong taxable income nadedetermine naman natin
yung exact amount so this will be initially measured at face amount or the measurement basis
b) Unearned or deferred revenues
 c) Warranty obligations
d) Commodity contracts that either cannot be settled in cash or
So for example gold yung ibabayad nagbabago bago yung value ng gold so this will be initially
measured at best estimate.
DERECOGNITION OF LIABILITIES
- Derecognized when and only when it is extinguished (i.e., when the obligation specified
in the contract is discharged, cancelled or it expires)
- The old financial liability should also be derecognized when an exchange between an
existing borrower and lender of debt instrument with substantially different terms or
substantial modification of the terms
SO how to derecognized liabilities sabi lang dito the liability will be derecognized if the
obligation already extinguished so masasabi nating extinguished yung obligation if the contract
iscancelled or it expires. From then on idederecognize na natin yung liability.
Next condition is that, when an existing borrowe and lender ay magkakaroon ulit ng obligation
contract with different terms from the old one or from the existing contract nila, then
idederecognize yung old financial liability and irerecognize na yung bago.
So from derecognition mag rerecognize ng gain or loss from the difference between the
amount of the extinguished liability and yung non cash asset transaferred.

FINANCIAL STATEMENT PRESENTATION

So lets go to distinction of current and non-current liabilities. So according to the standard
paghindi pasok or hindi fit sa definition ng current liability ang isang lability then therefore siya
ay non-current, a residual definition. So ano ba ang current liab, first sabi dito “it expects to
settle the liab in its normal operating cycle” diba pag sinabi nating operating cycle kunwari sa
manufacturing, from the moment na yung busi kumuha ng raw materials processed to be in
work in process then yielded finished goods and then nabenta na ng business hanggat sa
nakakolekta ng napagbentahan. SO that’s the normal operating cycle, so meaning pwede
siyanglonger than 1 yr or less than a year, if longer then 1 yr yung cycle but as long as payable
on the normal operating cycle, then ang classification is as current liability.
For example if the business is a dealer of car example honda and ang normal operating cycle ay
5 yrs kasi normally after 5 yrs pa bago natin makolekta lahat ng obligation, so kung nangutang si
honda ng car parts and mababayran pa siya compeletely after 4 yrs and since within operating
cycle current liability oar in.
 pero kung meron namang mga obligstion na to be settled within a yr so kahit na ang normal
operating cycle ay mahaba but ang settlement ay within 1 yr or less pwedeng may portion na
current then the rest ay non current.
Ito naman given na to the liab should be settled for 12 months so current liability nato.
And then “ liability is primary for purpose of trading or held in trade or being traded or to be
sold within the course of business then automatically siya ay current liability.
Lastly, “ the entity has no unconditional right so simply put meron siyang conditional right to
defer settlement of liab for at least 12 months after reporting period, so current siya if feasible
to create cash reserve that can be used if ever na may outsatnading balance sa account.
THEN non current as a residual definition kung di nagfit sa lahat ng sinabi ko kanina therefore
non current liab.

ILLUSTRATION: Classification of Liabilities - Current vs. Non-current

Kobe Co. has the following liabilities as of December 31, 2021

Trade accounts payable P 600,000

Bonds payable 500,000
Trade notes payable 100,000
Security deposit 100,000
Cash dividends payable 80,000
Property dividends distributable 75,000
Held for trading financial liabilities 60,000
Income tax payable 50,000
Advances from affiliates 50,000
Trade accounts payable granted to 30,000
officers
Salaries and wages payable 25,000
SSS premiums payable 22,500
Deferred revenue 20,000
Unearned rent 15,000
Share dividend payable 15,000
Bank overdraft 10,000
Credit balance in customer’s accounts 8,000
Deferred tax liability 5,000
Accrued expenses 5,000

Not collectible within one year, long term advances from affiliates
Additional information:
• Deducted from the trade accounts payable are
a. Debit balance in suppliers' account P20,OOO
b. Undelivered checks 16,000
c. Postdated checks 8,000

 Excluded from the trade accounts payable are

Goods received on consignment P18,OOO
Goods in transit, shipped FOB Shipping point 17,500
Goods in transit, shipped FOB Destination 15,000

 Bonds mature in five equal semi-annual installments

 Security deposit was received from a lessee. The amount will be refunded on December
31, 2026.
 The deferred tax liability arises from a temporary difference which will reverse in 2022.
 Classification of Long-Term Debt Falling Due Within One Year

Ito ay long term liability however my portion na to be settled within one year so pano natin to
icaclasify.
Kung may maturity date at na settle within the maturity date then current liab
Has the discretion to refinance for a period of at least 12 months from the reporting date or the
balance sheet date or normally dec 31 pag calender method. Meaning meron right or choice si
borrower to refinance or ulitin or magset ulit ng maturity date basta for at least 12 months
from the reporting date meaning kung ang reporting date ay dec 31 221 then pwede niyang
irefinance gang from January 1 222 to dec 31 222 --- pag ganto ang nngayri non current liab na
siya.
To be refinanced on or before the reporting period so walang discretion walang right however
yung pinag kakaungatan,pumasok sa refinancing agreement and nangyari yun or nacompelete
yun on or before the reporting date so asahan na magiging non-current pa rin yung obligation
If nangyari yung agreemenet after the reporting period then current pa din siya.
Yung entity may hindi sinunod sa contract, may mga condition si lender bago niya tayo
pautangin at pag may hindi na meet sa condition ni lender then breach of contract na po yun.
And pag may breach of contract magiging payable on demand na yung obligation so kaya
naging required to be settled within 12 months so pag ganito iclasiffy as current liability.
May mga exceptions
Lender agreed to provide grace period on or before the end of the reporting date for 12
months from the reporting date ,meaning naawa si seller na imbis na naging payable on
demand binigyan tayo ng period bago magkaroon ng sapat na pambayad. Meaning dapat
before dec 31 magbibigay ng grace period si lender so kung mangyari to then iclassify natin as
non current however if after the reporting date yung grace period then current liability pa din
po yun.