Page 135 - Microsoft Word - 00 - Prelims.docx

Payables, provisions and contingent liabilities

Liabilities

1.1 Overview

A liability is defined as 'a present obligation of the entity arising from past
events, the settlement of which is expected to result in an outflow from the
entity of resources embodying economic benefits' (IAS 37, para 10). The
obligation must be capable of reliable measurement. The obligation may be a
legal or a constructive obligation.

A constructive obligation may be established by an entity having
established or published policies and practices which creates a valid
expectation that those policies or practices will be upheld.

A legal obligation is one enforceable by operation of law.

1.2 Current vs non-current liabilities

Current liabilities Non-current liabilities

 Liabilities which are  Long term liabilities
payable within 12 months payable more than
of the reporting date. 12 months after the
reporting date.
 e.g. payables, bank
overdraft  e.g. long-term bank loan

129