Question

Kootenay Inc.'s CFO provided you with the following financial information for the fiscal year ended December 31, 2017 Trade payables in the amount of S650,000 payable in 30-45 days after year-end $1.5 million of Notes Payable with maturity dates throughout 2020 Customer deposits of $400,000 received for products ordered in 2017 Salaries Payable of $47,250. The next pay day is January 7, 2018 $2.5 million of Bonds Payable maturing on July 1, 2018. Kootenay renegotiated the bondholder agreement to roll over the maturity date to July 1, 2023. The agreement was finalized on January 31, 2018, five days after the external auditors signed the audit report. Kootenay guaranteed the mortgage of a related company in 2014. The mortgage of $2,750,000 matures in 2018. The carrying amount of the building held as security is $3,500,000 Kootenay's shareholders' equity includes $100,000 of 3.5% cumulative preferred shares held by family members. At December 31,2017 there were accumulated but undeclared dividends in the amount of $10,500 Kootenay offers a 1-year manufacturers warranty on the purchase of its products. In 2017 Kootenay sold 100 units at $6,500 per unit. Actual warranty expense in 2017 for 2017 sales was $13,000. Kootenay estimates the average warranty cost per unit is S650 a. b. c. d. e. f. g, h. Required i. ii. iii. iv. Describe the essential characteristics used to identify an item as a liability. Note any differences between ASPE and IFRS. [2 marks] Describe the difference between a current liability and a long-term liability. Note any differences between ASPE and IFRS. [2 marks] Describe the distinguishing features between a financial liability and a non-financial liability. [1 mark] Describe how each of the above financial items should be presented in the financial statements (e.g current, long-term) and indicate whether the item is a financial or non-financial item. Note any differences between ASPE and IFRS. [This part can be set up in a table or chart format] 10 marks]

Answer 1

Part-i) A liability has three essential characteristics as per ASPE and IFRS:

1) Liabilitie creates a duty or responsibility.

2) To avoid the obligation, entity has little or no discretion.

3) The event /transaction creating the obligation has already occurred.

Part-ii) Current liabilities are the obligations, the liquidation of which is reasonably expected to require the use of existing current assets or the creation of other current liabilities.

Any liabilities, which are not due to be paid off within 1 year, it’s considered to be long-term liability.

Part-iii) Financial Liability: Any liability that is a contractual obligation to deliver cash or another financial asset to another entity is known as financial liability.

Nonfinancial liability: Non-financial liability is any contingent liability which is not contractual in nature is a non-financial liability.

Part-iV)

a) Current liability – Financial

b) Long-term liability – Financial

c) Current Assets – Financial

d) Current liability – Financial

e) Long-term liability – Financial

f) Long-term liability – Non-financial

g) Long-term assets – Non-financial

h) Current liability – Non-financial

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