Appendix HOther Significant Liabilities

Learning Objectives

After studying this appendix, you should be able to:

1 Describe the accounting and disclosure requirements for provisions and contingent liabilities.

2 Contrast the accounting for operating and finance leases.

3 Identify additional fringe benefits associated with employee compensation.

In addition to the current and non-current liabilities discussed in Chapter 10, several more types of liabilities may exist that could have a significant impact on a company's financial position and future cash flows. These other significant liabilities will be discussed in this appendix. They are (a) provisions and contingent liabilities, (b) lease liabilities, and (c) additional liabilities for employee fringe benefits (paid absences and postretirement benefits).

Provisions and Contingent Liabilities

LEARNING OBJECTIVE 1

Describe the accounting and disclosure requirements for provisions and contingent liabilities.

When Siemens AG (DEU) reports an accounts payable, there is an invoice or formal agreement as to the existence of the liability and its amount. Similarly, when Siemens accrues interest for interest payable, the timing and the amount of the liability are known. But suppose Siemens is involved in a dispute (lawsuit) with taxing authorities over the amount of its income tax liability. In this case, both the existence and the amount of the liability may be uncertain. How does Siemens determine whether to report a liability and ...

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