The Harmonized Sales Tax (HST) is a combination of GST and PST that is used in some Canadian jurisdictions. Other deductions that are often withheld by employers include union dues and health care premiums. Investors consider the interest rates of bonds as well as the quality of the assets, if any, that are pledged as security. The other provisions in a bond contract are of limited or no value if the issuing corporation is in financial difficulties.

Charitable donations withheld by an employer would be paid to the charity as directed by the employee. Each bond has an amount printed on the face of the bond certificate. This is called the face value of the bond; it is also referred to as the par-value of the bond. When the cash received is the same as a bond’s face value, the bond is said to be issued at par. A common face value of bonds is $1,000, although bonds of other denominations exist. A $30 million bond issue can be divided into 30,000 bonds, for example.

A contingent liability is a potential liability (and a potential loss or potential expense). For a contingent liability to become an actual liability a future event must occur. Estimated liabilities represent the recognition of probable future charges that result from a prior act (the estimated liability for warranties, trading stamps, or coupons).

Payroll Liabilities

The descriptive information disclosed to readers of financial statements includes the interest rate and maturity date of the bond issue. Also disclosed in a note are any restrictions imposed on the corporation’s activities by the terms of the bond indenture and the assets pledged, if any. The liability should not be reflected on the balance sheet if the contingent loss is remote and has less than a 50% chance of occurring. Any contingent liabilities that are questionable before their value can be determined should be disclosed in the footnotes to the financial statements.

Current vs. Non-Current Liabilities

1. Current liabilities can include known liabilities such as payroll liabilities, interest payable, and other accrued liabilities.
2. A contingent liability is a potential liability (and a potential loss or potential expense).
3. Long-term liabilities are a form of debt that is expected to be paid beyond one year of the balance sheet date or the next operating cycle, whichever is longer.

These obligations are based many different things like the number of employees, employee retirement rates, employee compensation, vesting rules, etc. It would be impossible to calculate exactly how much the company will be on the hook for with all of these conditions. Working through the vagaries of contingent accounting what is an estimated liability is sometimes challenging and inexact. Company management should consult experts or research prior accounting cases before making determinations.

These restrictions are typically reported to the reader of financial statements through note disclosure. Every corporation is legally required to follow a well-defined sequence in authorizing a bond issue. The bond issue is presented to the board of directors by management and must be approved by shareholders. Legal requirements must be followed and disclosure in the financial statements of the corporation is required. An estimated liability is a liability that is absolutely owed because the services or goods have been received.

Details of the loan would be disclosed in a note to the financial statements. Only the principal amount of the loan is reported on the balance sheet. The interest expense portion is reported on the income statement as an expense. Because these loan payments are made at BDCC’s year-end, no interest payable is accrued or reported on the balance sheet.

Short-term Notes Payable

Contingent liabilities are neither a known liability nor an estimated liability and are not recorded if they are determined to exist. A contingent liability exists when it is not probable or it cannot be realiably estimated. A contingent liability is disclosed in the notes to the financial statements. Known current liabilities are those where the payee, amount, and timing of payment are known. Sales taxes, including the Goods and Services Tax (GST) and Provincial Sales Tax (PST), must be collected by registrants and subsequently remitted to the Receiver General for Canada. Short-term notes payable, also a known current liability, can involve the accrual of interest if the maturity date falls in the next accounting period.

These liabilities must be classified on the balance sheet as current or long-term. Current liabilities can include known liabilities such as payroll liabilities, interest payable, and other accrued liabilities. Short-term notes payable and estimated liabilities, including warranties and income taxes, are also classified as current. Long-term debt is used to finance operations and may include a bond issue or long-term bank loan. An estimated liability is known to exist where the amount, although uncertain, can be estimated. Warranties and income taxes are examples of estimated liabilities.

This feature ensures the availability of adequate cash for the redemption of the bonds at maturity. The fund is called “sinking” because the transferred assets are tied up or “sunk,” and cannot be used for any purpose other than the redemption of the bonds. When serial bonds are issued, the bonds have differing maturity dates, as indicated on the bond contract. Investors are able to choose bonds with a term that agrees with their investment plans.