Theory

Key Terms & Definitions

Liability — A present obligation arising from a past event that is expected to result in a future outflow of resources (IFRS Conceptual Framework).

Present Obligation — An obligation that the entity has no realistic alternative to settle, forming the basis for liability recognition.

Financial Liability — A contractual obligation to deliver cash or another financial asset, or to exchange financial instruments under unfavorable terms (IAS 32).

Current Liabilities — Liabilities expected to be settled within 12 months or within the operating cycle. Examples: Accounts Payable, Short-term Loans, Taxes Payable.

Non-Current Liabilities — Obligations due after more than 12 months, such as long-term loans. Examples: Long-term Loans, Bonds Payable.

Provisions — Liabilities of uncertain timing or amount, recognized under IAS 37 (e.g., warranties, legal claims).

Equity — The residual interest in the assets of the entity after deducting all liabilities.

Share Capital — The value of shares issued to owners, representing their initial and subsequent investment.

Retained Earnings — Accumulated profits retained in the business after dividends.

Reserves — Equity components set aside for specific purposes, including revaluation or statutory reserves.