MARY THE QUEEN COLLEGE OF PAMPANGA INC.

Gapan-Olongapo Road, Guagua, Pampanga 2003

Module No – Title : MO8 – Liabilities

Time Frame : 1 week – 3 hrs

LIABILITIES

• Liability – is a present obligation arising from past event, the settlement of which
is expected to result in an outflow of resources embodying economic benefits or
service potential.
• Present obligation means that as of the reporting date, an obligating event must
have already occurred.
• An obligating event is an event that creates either:
a. Legal Obligation – is an obligation that results from a contract, legislation,
or other operation of law; or
b. Constructive Obligation – is an obligation that results from an entity’s
actions (e.g., past practice, published policies) that create a valid
expectation from others that the entity will accept and discharge certain
responsibilities.

LIABILITY RECOGNITION CRITERIA

• A liability is recognized only when all of the following are met:

a. The item meets the definition of a liability (i.e., present obligation);
b. It is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation; and
c. The obligation has a cost or value (e.g., fair value) that can be measured
reliably.

FINANCIAL LIABILITIES

• A financial liability is any liability that is:

a. A contractual obligation to deliver cash or another financial asset to another entity;
b. A contractual obligation to exchange financial instruments with another entity
under conditions that are potentially unfavorable to the entity; or
c. A contract that will or may be settled in the entity’s own equity instruments.

Examples:
• Accounts Payable
• Notes Payable
• Interest Payable
• Loans Payable
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• Bonds Payable
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• Accrued Payables
MARY THE QUEEN COLLEGE OF PAMPANGA INC.
Gapan-Olongapo Road, Guagua, Pampanga 2003

INITIAL MEASUREMENT

• Financial liabilities are initially measured at fair value minus transaction costs,
except for financial liabilities at fair value through surplus or deficit (e.g., designated
financial liabilities and derivative liabilities) whose transaction costs are expensed.
• Transaction costs are incremental costs that are directly attributable to the
acquisition, issue, or disposal of a financial instrument.

SUBSEQUENT MEASUREMENT

• Financial liabilities are subsequently measured at amortized cost, except for

financial liabilities at fair value through surplus or deficit which are subsequently
measured at fair value.

DERECOGNITION OF LIABILITY

• A financial liability is derecognized when it is extinguished, such as when it is

discharged, waived, cancelled, or it expires.

PROVISION

• Provision – is a liability of uncertain timing or amount.

• A provision is recognized if all the recognition criteria for a liability are met (i.e.,
present obligation, probable outflow, and reliable measurement). If one or more of
the criteria are not met, the item is a contingent liability, not a provision, and
therefore not recognized as liability.

CONTINGENT LIABILITY

• Contingent Liability is:

• A possible obligation that arises from past events, and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the entity; or
• A present obligation that arises from past events, but is not recognized because:
a. It is not probable that an outflow of resources embodying economic benefits
or service potential will be required to settle the obligation; or
b. The amount of the obligation cannot be measured with sufficient reliability.
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 MARY THE QUEEN COLLEGE OF PAMPANGA INC.
Gapan-Olongapo Road, Guagua, Pampanga 2003

CONTINGENT ASSET

• Contingent Asset – is a possible asset that arises from past events, and whose
existence will be confirmed only by the occurrence or non-occurrence of one or
more uncertain future events not wholly within the control of the entity.

Contingent Probable Possible Remote

Recognize and Disclose
➢ Liability Ignore
Disclose only

➢ Asset Disclose only Ignore Ignore

PERFORMANCE BOND/SECURITY DEPOSITS

Receipts of performance bond posted by contractor/supplier to guaranty full and faithful

performance of their contract may be in the form of cash or certified checks.

ILLUSTRATION:

The Collecting Officer of Agency DEF received P20,000 cash for the performance bond
from Contractor X to guaranty full performance of their contract. Said amount was
remitted to Bureau of Treasury.

The following journal entries shall be prepared to record the above transactions:

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
Cash Collecting Officer 10101010 P 20,000
Guaranty/Security Deposits Payable 19901010 P 20,000

To recognize collection of performance bond/security deposits

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
Cash – Treasury/Agency Deposit, Trust 10104010 P 20,000
Cash Collecting Officer 10101010 P 20,000
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To recognize remittance of collections to BTr

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 MARY THE QUEEN COLLEGE OF PAMPANGA INC.
Gapan-Olongapo Road, Guagua, Pampanga 2003

COLLECTIONS MADE ON BEHALF OF ANOTHER ENTITY OR NON-GOVERNMENT/

PRIVATE ORGANIZATIONS

These are receipts of income, receivables or trust funds for the account of other NGAs,
LGUs, GOCCs or non-government/private organizations. These collections are later
remitted to the government agencies or non-government/private organizations
concerned.

ILLUSTRATION:

Agency X collected fees accruing to the University of the Philippines legal research fund
in the amount of P3,000 and remitted the same to the Bureau of Treasury. The UP legal
research fund and Bureau of Treasury appropriately recognized this in their respective
books.

The following journal entries shall be prepared to record the transactions:

Books of Agency X

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
Cash Collecting Officer 10101010 P 3,000
Due to NGAs 20201050 P 3,000

To recognize collection of fees accruing to the UP-LRF

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
Due to NGAs 20201050 P 3,000
Cash Collecting Officer 10101010 P 3,000

To recognize remittance of collection to BTr for the account of UP-LRF

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 MARY THE QUEEN COLLEGE OF PAMPANGA INC.
Gapan-Olongapo Road, Guagua, Pampanga 2003

Books of BTr

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
Cash In Bank – Local Currency, Savings
Account 10102030 P 3,000
Cash – Treasury/Agency Deposit,
Trust 10104030 P 3,000

To recognize receipt of remitted collections for UP-LRF

Books of UP-LRF

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
Cash – Treasury/Agency Deposit, Trust 10104030 P 3,000
Trust Liabilities 20401010 P 3,000

To recognize remitted collections for UP-LRF by other NGAs

INTRA-AGENCY & INTER-AGENCY FUND TRANSFER

Intra-agency Fund Transfer

These are cash received from central office/regional office/operating units of an entity for
the purpose of implementing specific projects.

ILLUSTRATION:

In an intra-agency transaction, the Central Office (CO) of DOH made fund transfer to its
Regional Office (RO) in the amount of P500,000 for the implementation of its campaign
against dengue in Zone A of Region X. Said amount was accordingly remitted to the
Bureau of Treasury by the RO.
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 MARY THE QUEEN COLLEGE OF PAMPANGA INC.
Gapan-Olongapo Road, Guagua, Pampanga 2003

The following journal entries shall be prepared to record the above transactions:

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
Cash Collecting Officer 10101010 P 500,000
20301030/
Due to Regional Offices (Due to NGAs) (20201050) P 500,000

To recognize receipt of intra-entity fund transfer

ACCOUNT
ACCOUNT TITLE DR. CR.
CODE
Cash Treasury/Agency Deposit - Trust 10104030 P 500,000
Cash Collecting Officer 10101010 P 500,000

To recognize remittance of collections of BTr

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