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Initial recognition
An entity should recognise trade and other payables
when it becomes a party to the contractual provisions
of the instrument [IAS39R.14, AG35]. An entity's obligations
concerning trade and other payables are usually
easily identified and the point of recognition is
clear. Most obligations are legally enforceable
and arise under contractual arrangements. These
include amounts owed for assets purchased or services
obtained (trade creditors), and obligations to provide
goods and services where an external party has paid
in advance. Obligations are often imposed by statute.
An entity should recognise these obligations on
the basis of notices and requests for payment from
the relevant authority. Constructive obligations
should be recognised on the basis of amounts promised
to third parties.
An entity often incurs obligations in the form
of financial and performance guarantees. For example,
an entity may sell its receivables yet retain a
portion of the credit risk in these receivables
through guarantees. The recognition of guarantees
depends on their nature. Financial guarantees that
provide for payments to be made if the debtor fails
to make a payment when due should be recognised
as part of provisions or, when the recognition criteria
are not met, disclosed as contingent liabilities
[IAS 39R.2(f),
IAS37R.14,23]. Financial guarantees that provide
for payments to be made in response to changes in
a specified index such as a credit rating should
be recognised as financial instruments [IAS39R.3]
Accrued expenses are liabilities to pay for goods
or services that have been received or supplied
but have not been paid, invoiced or formally agreed
with the supplier [IAS37R.11(b)]. The recognition
of accrued expenses results directly from the recognition
of expenses for items of goods and services consumed
during the period. Although it is sometimes necessary
to estimate the amount or timing of accruals, the
uncertainty is generally much less than for provisions
[IAS37R.10].
Initial measurement
Initial measurement of trade and other payables
is usually at fair value. The initial measurement
of financial liabilities not at fair value through
profit or loss includes transaction costs directly
attributable to the acquisition or issue of the
financial liability [IAS39R.43]. Initial fair value
is established by reference to amounts agreed between
the entity and the supplier and amounts invoiced
from statutory authorities. Accrued expenses are
measured at management's estimate of the fair value
of the goods and services received but not yet invoiced.
Financial guarantees that provide for payments
to be made if the debtor fails to make a payment
when due should initially be recognised at fair
value [IAS39R.2(f)]
Subsequent measurement
Items classified within trade and other payables
are not usually re-measured, as the obligation is
usually known with a high degree of certainty and
its settlement is short-term.
Financial guarantees that provide for payments
to be made if the debtor fails to make a payment
when due should be re-measured at the higher of
(i) the amount recognised under IAS 37R and (ii)
the amount initially recognised (that is, fair value)
less, where appropriate, cumulative amortisation
recognised in accordance with IAS 18R.
Derecognition
Derecognition occurs when the contractual obligation
is cancelled, expired or discharged, for example
through payment of the amount due, or through the
counterparty forgiving the debt. [IAS39R.39-42]
.
Presentation and disclosure
Trade and other payables should be presented as
a separate line item on the face of the balance
sheet [IAS1R.68].
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