Is Unearned Income a financial Liability?

Is Unearned Income a financial Liability?

No, Unearned Income is not a financial liability

Reason:

Since it is not an obligation to pay. Two essential conditions for financial liability are 
1) It must be settled into cash
2)It must a contractual obligation, not a legal obligation.

Point to ponder:

Any liability which is settled into cash provided that it is a contractual obligation is a financial liability.
For the Same purpose, Tax liability is not a financial liability as it is a legal obligation and not a contractual obligation

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General concepts about IFRS9 Financial instrument

Is Prepaid rent a Financial asset?

Answer:

No, Prepaid rent is not a financial asset 

Reason:
A financial asset can be classified into the following categories:

-Cash
-Right to receive cash
-shares of another company 
-Derivative

Point to ponder

Any Asset which converts into cash afterward is Financial asset, if it converts into expense it is not a financial asset.

Since Prepaid Rent gradually converts into expense so it is not a financial asset.

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IFRS 9 (Financial Instruments)

Financial Instruments

 Case 1 Journal entries for Issuer 

When Issuer gives Shares/equity to the Investor 

In the books of Issuer 

                                               Debit                     Credit 

Cash                                       100

Share capital                                                       100

(Share capital is an obligation to pay on the issuer)

In the books of Investor 

                                            Debit                    Credit 

Investment                          100

Cash                                                                  100

Case 2: When Loan/debt security or debenture

In the books of Issuer 

                                          Debit                         Credit 

Cash                                  100

Debenture payable                                              100      

In the books of Investor

                                        Debit                           Credit

Investment                      100

Cash                                                                    100

(Investment is the right to Receive cash)               

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Variance, cost accounting

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Terms related to Audit

Materiality= materiality means a matter of significant import, it includes both qualitative and quantitative materiality.

Engagement Partner= The Partner or other person in the firm who is responsible for the Engagement and its performance, including a report that is being issued on behalf of the firm.

Engagement team= All the individuals and staff in a firm performing the engagement or any other person appointed by the firm or a network of firm to perform the procedure on the engagement. It excludes external experts engaged by the former network firm.

Reasonable assurance= High level but not absolute assurance

Those charged with governance= Person responsible for overseeing the strategic direction of the entity.

Practioner= A professional accountant in Public Practice

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Brief analysis of IFRS 9 Financial instument

Financial Instrument (IFRS 9)

A contract that gives rise to Financial assets of one party and Financial liability and Financial liability and equity for another party.

One party is The ISSUER( who issue either Debt security or equity security)

And the Other is the INVESTOR( who invest either in Debt security or equity security)

Debt security = Loans/debentures

Equity security =Shares

Then we have FINANCIAL ASSET, FINANCIAL LIABILITY, EQUITY

FINANCIAL ASSET= Right to receive cash, Shares of another company and derivative

FINANCIAL LIABILITY= Obligation to pay

Equity= Shares

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