Page 171 - F3 -FA Integrated Workbook STUDENT 2018-19

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' (Framework Glossary). The
obligation must be capable of reliable measurement.

The obligation may be either a legal or 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 and non-current liabilities

Current liabilities Non-current liabilities

 Liabilities which are payable  Long term liabilities payable
within 12 months of the more than 12 months after

reporting date. the reporting date.
 e.g. payables, bank overdraft  e.g. long-term bank loan

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