Liabilities & Debt

Everything a business owes, and the three questions that keep recurring: when does an obligation get recognised at all, what amount goes on the statement, and how does the cost of borrowing reach profit or loss? The chapter starts with notes payable, where accrued interest straddles the year-end and the following period has to pick up the rest. Non-interest-bearing notes make the point that a debt can carry interest even when nobody calls it interest — the note is recorded at present value and the discount unwinds as expense. Bonds extend the same idea. A bond issued below face value carries a discount that is amortised into interest expense; a premium does the opposite and pushes expense below the cash coupon. The effective-interest method is approached three times on purpose — first as a concept, then as a formula applied to the carrying amount, then as a full first-year computation. Convertible bonds then split into a liability and an equity component under IAS 32. Provisions and contingencies turn on probability: recognise when an outflow is probable and measurable, disclose when it is only possible, and never recognise a contingent asset until it is virtually certain. The chapter closes with IFRS 16, where almost every lease now puts a right-of-use asset and a lease liability on the lessee's statement of financial position. It closes by putting all of it to work: correcting a lease an accountant booked as rent — measuring exactly how far each statement was out — and a year-end review that brings four different liabilities to the amount actually owed. An optional final section covers the same ground under US GAAP.