Problem 1-3 Multiple choice (PAS 1)

1. The principal classifications of liabilities are

a. Current liabilities and noncurrent liabilities
b. Current liabilities, noncurrent liabilities and deferred revenue
c. Current liabilities and deferred revenue
d. Noncurrent liabilities and deferred revenue

2. All of the following condition would require the classification of a liability as

current, except
a. The entity expects to settle the liability within the entitys operating cycle
b. The entity holds the liability for the purpose of trading
c. The liability is due to be settled within twelve months after the reporting period
d. The entity has an unconditional right to defer settlement of the liability for at
least twelve months after the reporting period.
3. A long-term debt which is due to be settled within twelve months after the reporting
period is classified as noncurrent when
I. An agreement to refinance or to reschedule payments on a long-term basis is
completed on or before the end of the reporting period and before the financial
statements are authorized for issue
II. The entity has the discretion to refinance or roll over the obligation for at least
twelve months after the reporting period under an existing loan facility.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
4. Which obligations are classified as current even if they are expected to be settled
after more than twelve months from the end of reporting period?
a. Trade payables and accruals for employee and other operating costs
b. Bank overdrafts

c. Dividends payable
d. Income taxes payable
5. Some borrowing agreements incorporate covenants which have the effect that the
liability becomes payable on demand if certain conditions related to the covenants
are breached. In such a case, the liability is classified as
I. Current even if the lender has agreed, after the reporting period and before the
statements are authorized for issue, not to demand payment as a consequence of
the breach.
II. Noncurrent when the lender has agreed on or before the end of the reporting
period to provide a period of grace ending at least twelve months after that date.
a. I only
b. II only
c. Either I or II
d. Neither I nor II