Intermediate Accounting, 15th Edition

CHAPTER 13 Current Liabilities and Contingencies

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Describe the nature, type, and valuation of current liabilities.
2. Explain the classification issues of short-term debt expected to be refinanced.
3. Identify types of employee-related liabilities.
4. Identify the criteria used to account for and disclose gain and loss contingencies.
5. Explain the accounting for different types of loss contingencies.
6. Indicate how to present and analyze liabilities and contingencies.

Now You See It, Now You Don't

A look at the liabilities side of the balance sheet of the company Beru AG Corporation, dated March 31, 2003, shows how international standards have changed regarding the reporting of financial information. Here is how one liability was shown on this date:

Do you believe a liability should be reported for such transactions? Anticipated losses means the losses have not yet occurred. Pending transactions means that the condition that might cause the loss has also not occurred. So where is the liability? To whom does the company owe something? Where is the obligation?

German accounting rules in 2003 were permissive. They allowed companies to report liabilities for possible future events. In essence, the establishment of this general-purpose “liability” provides a buffer for Beru if losses do materialize. If you take a more skeptical ...